Everything else held constant,if the sum of the required reserve ratio and the excess reserve ratio is less than one,a decrease in the currency-checkable deposit ratio will mean

Question

Quizplus · Accepted Answer

A decrease in the currency-checkable deposit ratio means that a larger proportion of deposits are being held in the form of currency rather than in the bank. This reduces the amount of checkable deposits that the bank has, which in turn reduces the amount of required reserves that the bank needs to hold. Since the sum of the required reserve ratio and excess reserve ratio is less than one, this decrease in required reserves will lead to an increase in excess reserves. With more excess reserves, banks have more funds available to lend out, which will increase the money supply. Therefore, the correct answer is B.

Everything Else Held Constant,if the Sum of the Required Reserve