Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits, then bank reserves will
A) decrease and the money supply will eventually decrease.
B) decrease and the money supply will eventually increase.
C) increase and the money supply will eventually decrease.
D) increase and the money supply will eventually increase.

Question

Quizplus · Accepted Answer

When people hold less currency and deposit more in banks, bank reserves increase. This allows banks to lend more, which increases the money supply through the money multiplier effect.

Suppose That in a Country People Gain More Confidence in the Banking