An increase in income will cause

Question

Quizplus · Accepted Answer

An increase in income will lead to an increase in the amount of deposits in banks, which in turn increases the demand for reserves. This is because banks are required to hold a certain amount of reserves against their deposits as per the reserve requirement set by the central bank. Therefore, an increase in income will increase the demand for reserves. Option A is incorrect as an increase in income does not lead to a reduction in the supply of central bank money. Option B is also incorrect as an increase in income does not reduce the demand for currency.

An Increase in Income Will Cause