Final answer:
The statement about securities payment reflects a true relationship between buying securities, payment methods, and the effect on bank reserves and money supply. The Panic of 1819 actually decreased faith in the Second Bank of the U.S., not increased it. Furthermore, changes in reserve requirements can significantly influence the amount of money circulating in the economy.
The correct option is a.
Step-by-step explanation:
The statement 'the buyers of these securities pay for them with checks and bank reserves fall' is true. When buyers purchase securities with checks, the money is typically drawn from their deposit accounts, and the banks' reserves are reduced by an equal amount.
To maintain reserve requirements, these banks may have to reduce their lending, which contracts the money supply. This concept is illustrated by the example given where a bank must hold $1,000 in reserves but purchases $500 in bonds. To comply with reserve requirements, it reduces its loans by $500, which subsequently decreases the money supply.
The Panic of 1819
Regarding the question related to the Panic of 1819, the correct answer is false. The Panic of 1819 did not increase the American people's faith in the Second Bank of the United States; in fact, it caused distrust in the institution due to its role in speculative lending practices that contributed to financial instability.
Reserve requirements have a significant impact on the money supply. If reserve requirements are increased, banks must hold more funds in reserve, thus reducing the amount available for loans and decreasing the overall money supply. This action leads to less money circulating in the economy.