Which of the following can change the supply of real money balances?

Question

Quizplus · Accepted Answer

All of the above options can change the supply of real money balances.

A change in reserves can directly affect the supply of real money balances. If the Fed decides to increase the amount of reserves held by banks, this will increase the ability of banks to lend, which can lead to an increase in the supply of money and thus a change in real money balances.

Similarly, a change in the monetary base, which includes reserves and currency in circulation, can also affect the supply of real money balances. An increase or decrease in the monetary base will ultimately affect the money supply and thus have an effect on real money balances.

Finally, the price level can indirectly affect the supply of real money balances. If the price level increases, people will need more money to purchase the same amount of goods and services. This increase in demand for money can lead to a decrease in real money balances, assuming the supply of money remains constant.

Which of the Following Can Change the Supply of Real