Suppose the Public Decides to Hold More Currency and Fewer

question 181

Multiple Choice

Suppose the public decides to hold more currency and fewer deposits in banks. Which statement describes the effects of this decision?

• A) Bank reserves decrease, and the money supply eventually decreases.
• B) Bank reserves decrease, but the money supply does not change.
• C) Bank reserves increase, and the money supply eventually increases.
• D) Bank reserves increase, but the money supply does not change.

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Definitions:

Marginal Revenue Product

The additional revenue generated by employing one more unit of input, such as labor or capital.

Economic Rent

The excess payment made for a factor of production over its opportunity cost.

Total Supply

The total amount of a product or service available for purchase at any given price point.

Henry George

A 19th-century economist known for his belief that people should own the value they produce but that land and natural resources should belong to the community.