During recessions,banks typically choose to hold more excess reserves relative to their deposits.This action
A)increases the money multiplier and increases the money supply.
B)decreases the money multiplier and decreases the money supply.
C)does not change the money multiplier,but increases the money supply.
D)does not change the money multiplier,but decreases the money supply.

Question

Quizplus · Accepted Answer

When banks hold more excess reserves, the amount of required reserves stays the same, but the total reserves in the banking system increase. This reduces the money multiplier, as less money is being created through the lending process. As a result, the money supply decreases.

During Recessions,banks Typically Choose to Hold More Excess Reserves Relative