If many banks fail, this is likely to:
A) increase the ratio of currency to deposits.
B) decrease the ratio of currency to deposits.
C) have no effect on the ratio of currency to deposits.
D) decrease the amount of currency in circulation, if the Fed takes no action.

Question

Quizplus · Accepted Answer

When many banks fail, people tend to withdraw their money and hold onto it as currency rather than keeping it in the banks. This increases the amount of currency relative to deposits, thus increasing the ratio of currency to deposits.

If Many Banks Fail, This Is Likely To