If banks' desired reserve ratio increases from 10% to 15%,the public still desires to hold the same amount of currency,and the Bank of Canada takes no action,the money supply will
A) increase.
B) decrease.
C) not change.
D) either increase or decrease.
E) equal the quantity of currency that is still in usE.

Question

Quizplus · Accepted Answer

An increase in the desired reserve ratio means that banks will have to hold a higher percentage of deposits as reserves, which means they will have less money to lend out. This leads to a decrease in the money supply. Since the public desires to hold the same amount of currency, there will be no change in the amount of currency in circulation.

If Banks' Desired Reserve Ratio Increases from 10% to 15%,the