When people withdraw money from their deposits in the banking system, the:
A) Excess reserves of the banking system will decrease
B) Excess reserves of the banking system will increase
C) Excess reserves of the banking system will not be affected
D) Money supply will immediately decrease

Question

Quizplus · Accepted Answer

When people withdraw money from their deposits in the banking system, the banks lose reserves, which are part of their excess reserves. As a result, excess reserves of the banking system will decrease, reducing the banks' ability to create new loans and lowering the money supply in the economy.

When People Withdraw Money from Their Deposits in the Banking