Asked by Farza Ahmad on May 08, 2024
Verified
If the public decides to hold more currency and fewer deposits in banks, bank reserves
A) decrease and the money supply eventually decreases.
B) decrease but the money supply does not change.
C) increase and the money supply eventually increases.
D) increase but the money supply does not change.
Bank Reserves
Funds that banks hold to meet immediate withdrawal demands and regulatory requirements.
Money Supply
The total amount of money—coins, currency, and bank deposits—circulating in an economy.
- Gain insight into how the actions of the Federal Reserve influence bank reserves and the overall money supply.
Verified Answer
AN
Adriana NicoleMay 15, 2024
Final Answer :
A
Explanation :
If the public decides to hold more currency and fewer deposits in banks, banks will have less in deposits to lend out and therefore their reserves will decrease. This decrease in reserves will lead to a decrease in the money supply over time.
Learning Objectives
- Gain insight into how the actions of the Federal Reserve influence bank reserves and the overall money supply.