Question

In the 19th century, when crop failures often led to bank runs, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, these actions by the banks should have a. increased the money multiplier and the money supply b. decreased the money multiplier and increased the money supply. c. increased the money multiplier and decreased the money supply. d. decreased both the money multiplier and the money supply.

Answer 1

Answer:

Correct answer is (d). decreased both the money multiplier and the money supply.

Explanation:

In banking business, money multiplier represent how the money that was deposited can influence the money supply. By giving fewer loans and keeping more excess reserves, the money is not really working as it not in circulation, the consequence of this action is that it will decreased both the money multiplier and the money supply.