If the monetary base fell and the currency-deposit ratio rose but the reserve-deposit ratio remained the same, then:
A)the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen.
B)the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had fallen.
C)the money supply would fall more than it would have fallen if the reserve-deposit ratio had
D)risen. it is impossible to be certain whether the money supply would fall or rise in this case.

Question

Quizplus · Accepted Answer

If the monetary base falls, it would typically lead to a fall in the money supply. However, if the currency-deposit ratio (the amount of currency people hold relative to bank deposits) rises, it would mean that people are holding more currency and depositing less, which would partially offset the fall in the money supply. The reserve-deposit ratio (the amount of reserves banks hold relative to deposits) remaining the same doesn't have much impact on the outcome. Therefore, the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen.

If the Monetary Base Fell and the Currency-Deposit Ratio Rose