Question 11 Answer saved Points out of In a 100-percentreserve banking system, i

Question

Question 11 Answer saved Points out of In a 100-percentreserve banking system, if an indvidual withdraws money from their checking account, currency would 4.00 Select one: PFiag qjestion A decrease, while demand deposits would increase by less and M1 would decrease. B. increase, but demand deposits would decrease by the same amount and M1 would not change. C. decrease, but demand deposits woud increase by the same amount and MI would not change. D. increase, while demand deposits vould decrease by less and MI would increase.

Explanation / Answer

Since there is 100 reserve banking system and a consumer has withdrawn $100 from his checking account, therefore the currency will increase and demand deposit would decrease by the same amount and M1 will not change.

This is because currency which was with the bank, earlier now, the customer has withdrawn from his accounts, so currency would increase by the same amount. Since he has withdrawn from his checking accounts, therefore deposit will decrease by the same amount.

But M1 remain same because M1= currency + checking account. Therefore if we decrease checking account deposit by $100, then checking account decreases by 100 and currency will increase by the same amount. Therefore M1 remain constant.

Hence option B is the correct answer.

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