In an unregulated environment, the commercial banking system would tend to vary the supply of money in a way that:
A) Increased the money supply to the maximum at all times
B) Decreased the money supply to the minimum at all times
C) Emphasized the use of currency over demand deposits
D) Reinforced cyclical variations in the economy

Question

Quizplus · Accepted Answer

In an unregulated environment, commercial banks are more likely to reinforce cyclical variations in the economy by increasing money supply during boom periods and decreasing it during recessions. This can lead to economic instability as it amplifies economic cycles. Option A and B are extreme and unrealistic scenarios as they do not align with the basic principles of banking. Option C is not related to the question as it talks about the use of currency and demand deposits, which is a separate issue.

In an Unregulated Environment, the Commercial Banking System Would Tend