If people decide to hold less money as currency and more as checking deposits, this will most likely cause
A) a decrease in bank reserves.
B) a decrease in required reserves.
C) an increase in the discount rate.
D) an increase in the money supply.

Question

Quizplus · Accepted Answer

When people hold less money as currency and more as checking deposits, the demand for money increases, leading to an increase in the money supply. This is because the checking deposits are counted as a part of the money supply, whereas currency held by the public is not. A decrease in bank reserves or an increase in the discount rate would work to decrease the money supply, while a decrease in required reserves would have little effect on the money supply in this scenario.

If People Decide to Hold Less Money as Currency and More