In Macroland there is $1,000,000 in currency that can either be held by the public as currency or deposited into banks.Banks'desired reserve/deposit ratio is 10%.If the public of Macroland decides to hold more currency, increasing the proportion they hold from 50% to 75%, the money supply in Macroland will ______.

Question

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When the public holds more currency, less is deposited in banks, reducing the amount banks can lend out. With a reserve ratio of 10%, this decreases the money supply.

In Macroland There Is $1,000,000 in Currency That Can Either