If uncertainty causes commercial banks to increase their holdings of excess reserves, other things constant, this will

Question

Quizplus · Accepted Answer

If commercial banks increase their holdings of excess reserves due to uncertainty, it means the banks are less likely to loan out these excess reserves. This reduces their lending capacity, which in turn reduces the size of the deposit expansion multiplier. Therefore, the correct answer is B.

If Uncertainty Causes Commercial Banks to Increase Their Holdings of Excess