During a Bank Run,depositors Decide to Hold More Currency Relative

question 18

Multiple Choice

During a bank run,depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits.

• A)Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply increase.
• B)Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease.
• C)The decision to hold relatively more currency would make the money supply increase.The decision to hold relatively more excess reserves would make the money supply decrease.
• D)The decision to hold relatively more currency would make the money supply increase.The decision to hold relatively more excess reserves would make the money supply decrease

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Definitions:

Time Value of Money

The principle that a dollar received today is worth more than a dollar received in the future, due to its potential earning capacity.

Hurdle Rate

The minimum acceptable rate of return on an investment that a manager or investor expects to achieve.

Time Value of Money

The idea that having money in the present is more valuable than having the same sum in the future because of what it could potentially earn.