If there is an increase in the amount of currency held outside banks,then the
A)monetary base will decrease.
B)quantity of money will increase.
C)quantity of money and the monetary base will decrease.
D)quantity of money will decrease.
E)quantity of money will not change.

Question

Quizplus · Accepted Answer

If the amount of currency held outside banks increases, it means that people are holding more cash instead of depositing it in banks. This leads to a decrease in banks' reserves, which in turn reduces their ability to create new loans and deposits, ultimately leading to a decrease in the quantity of money in circulation. Therefore, the correct choice is D.

If There Is an Increase in the Amount of Currency