If the public decides to hold less currency and more deposits in banks, bank reserves
A) decrease and the money supply eventually decreases.
B) decrease but the money supply does not change.
C) increase and the money supply eventually increases.
D) increase but the money supply does not change.

Question

Quizplus · Accepted Answer

When the public holds less currency and deposits more in banks, bank reserves increase. This allows banks to lend more, which can lead to an increase in the money supply through the money multiplier effect.

If the Public Decides to Hold Less Currency and More