Question

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will a. increase and the money supply will eventually decrease. b. increase and the money supply will eventually increase. c. decrease and the money supply will eventually increase. d. decrease and the money supply will eventually decrease

Answer 1

Answer:

a. increase and the money supply will eventually decrease.

Explanation:

This is most likely what would happen in this situation. In a country where people have a lot of confidence in the banking system, people would be more likely to deposit their money in the bank. Therefore, this will increase bank reserves. However, if this happened, then people would hold relatively less currency, which means that the money supply would eventually decrease.