If the Fed increases reserves in the banking system,
A)deposit holdings will decrease, and currency holdings will increase.
B)deposit holdings will increase, and currency holdings will fall.
C)deposit and currency holdings will decrease.
D)both deposit and currency holdings will increase.
E)deposits will increase, and currency holdings by the public will not be affected.

Question

Quizplus · Accepted Answer

When the Fed increases reserves in the banking system, banks have more money to lend out, which encourages borrowing and economic growth. This also increases the supply of money in circulation, which leads to both deposit and currency holdings increasing.

If the Fed Increases Reserves in the Banking System