Question

The money supply decreases if:

a. Households decide to hold relatively more currency and relatively fewer deposits and banks decides to make less excess reserves and make more loans
b. Households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans
c. Households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans
d. Households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans

Answer 1

d. Households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans

Step-by-step explanation:

The money supply would decrease, if households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.

There would be fewer money in a country, when individuals choose to keep their cash rather than going to deposit it in the banks and perhaps engage more in cashless transactions.

Also, when banks refuses to dispense cash into the public domain and decides to cut down on loan issuance, it result in a decrease in money supply.