In the nineteenth century when there were often bank runs caused by crop failures,banks would make relatively fewer loans and hold relatively more excess reserves.By itself,these actions by the banks should have

Question

Quizplus · Accepted Answer

When banks make relatively fewer loans and hold relatively more excess reserves, this decreases the money multiplier, as less money is being created with each unit of reserves. Additionally, this reduces the money supply as there is less money available to be circulated in the economy. Therefore, the correct answer is D (decreased both the money multiplier and the money supply).

In the Nineteenth Century When There Were Often Bank Runs