Suppose the public decides to hold more currency and fewer deposits in banks. Which of the following best describes the effects of this decision?
A)Bank reserves decrease, and the money supply eventually decreases.
B)Bank reserves decrease, but the money supply does not change.
C)Bank reserves increase, and the money supply eventually increases.
D)Bank reserves increase, but the money supply does not change.

Question

Quizplus · Accepted Answer

When the public holds more currency and fewer deposits, banks have fewer reserves to lend out, leading to a decrease in the money supply through the money multiplier effect.

Suppose the Public Decides to Hold More Currency and Fewer