Question

Evaluate a. "If banks increase their excess reserves, the monetary base will increase. If the monetary base increases, the money supply will increase. Therefore, an increase in excess reserves increases the money supply”. b. The most important factor accounting for changes in the money supply in the long run is changes in bank lending policies that affect the money multiplier.

Answer 1

Answer: a is false and b. is false.

Explanation: a is false because if the banks increase their excess reserves, they will have less money to lend, then the supply of money will decrease.

B is false because in the United States, the Federal Reserve policy is the most important deciding factor in the money supply.