If many people were to suddenly deposit into their chequing accounts large sums of cash previously kept in their wallets,what would this result in?

Question

Quizplus · Accepted Answer

When people deposit cash into their checking accounts, banks hold on to a portion of the deposit as reserves, which increases their reserves. With a higher reserve ratio, banks can lend out more money and create additional deposits, leading to an increase in the money supply. Therefore, the correct option is B where it says an increase in reserves of banks and therefore an increase in the money supply. The other options are not correct as they do not explain the effects of the deposit on the money supply.

If Many People Were to Suddenly Deposit into Their Chequing