Other things being constant,if the public decides to hold more money in the form of currency rather than chequing deposits,what will be the effect on bank reserves and M2?

Question

Quizplus · Accepted Answer

When the public decides to hold more money in the form of currency rather than chequing deposits, there will be a decrease in the amount of chequing deposits held by banks. This will lead to a decline in bank reserves as well since banks need to hold a certain amount of reserves against their deposits. As a result, the money supply will also decline, leading to a decrease in M2. Therefore, option C is the correct answer.

Other Things Being Constant,if the Public Decides to Hold More