Assuming all else equal,if a bank expects a bank run in the future,________.
A) there will be a downward movement along its demand curve for reserves
B) there will be an upward movement along its demand curve for reserves
C) its demand curve for reserves will shift to the right
D) its demand curve for reserves will shift to the left

Question

Quizplus · Accepted Answer

When a bank expects a bank run in the future, it anticipates a higher demand for liquid assets (cash withdrawals by depositors). To prepare for this, the bank will want to hold more reserves than usual, leading to a shift to the right in its demand curve for reserves. This is because the bank's desire for reserves at each possible interest rate has increased, not just a movement along the existing demand curve.

Assuming All Else Equal,if a Bank Expects a Bank Run