When an individual deposits currency into a chequing account,
A) bank reserves increase,which increases the amount banks can lend,thereby increasing the money supply.
B) bank reserves decrease,which reduces the amount banks can lend,thereby reducing the money supply.
C) bank reserves are unchanged.
D) bank reserves decrease,which increases the amount banks can lend,thereby increasing the money supply.
E) bank reserves increase,which reduces the amount banks can lend,thereby reducing the money supply.

Question

Quizplus · Accepted Answer

When currency is deposited into a chequing account, bank reserves increase because the bank now holds more deposits. This increase in reserves allows banks to lend more, thereby increasing the money supply.

When an Individual Deposits Currency into a Chequing Account