If banks choose to hold more excess reserves, then:
A)the total reserves in the banking system will decrease
B)the money supply will fall
C)the money multiplier will increase
D)the discount rate will decrease

Question

Quizplus · Accepted Answer

When banks choose to hold more excess reserves, they are effectively decreasing the amount of funds available for lending and investment. This leads to a decrease in the money supply, since there is less money flowing in the economy. Therefore, choice B is the correct answer.

If Banks Choose to Hold More Excess Reserves, Then