The money supply will increase if the:
A) currency-deposit ratio increases.
B) reserve-deposit ratio increases.
C) monetary base increases.
D) discount rate increases.

Question

Quizplus · Accepted Answer

The monetary base is the total amount of reserves plus currency in circulation in the economy. If the monetary base increases, there are more reserves available for banks to lend out, which increases the money supply. An increase in the currency-deposit ratio (A) or reserve-deposit ratio (B) would decrease the money supply, while an increase in the discount rate (D) would make it more expensive for banks to borrow from the central bank and decrease lending, also decreasing the money supply.

The Money Supply Will Increase If The