If banks choose not to lend out their excess reserves then the money supply will not expand.

Question

Quizplus · Accepted Answer

Excess reserves refer to the amount of money banks hold above the required reserve ratio set by the central bank. If banks choose not to lend out these excess reserves, the money supply will not expand as there will be no new loans being created. This means that there will be no additional money being injected into the economy. Therefore, the statement is true.

If Banks Choose Not to Lend Out Their Excess Reserves