If banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall, ceteris paribus.

Name: If banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall, ceteris paribus.
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Question

Quizplus · Accepted Answer

If banks hold a smaller part of their deposits as excess reserves, it means they are lending more and there will be an increase in the money supply, ceteris paribus. Therefore, the statement is false.

If Banks Decide to Hold a Smaller Part of Their