Question

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

a. does not change the money supply.

b. increases the money supply.

c. decreases the money supply.

d. has an indeterminate effect on the money supply.

Answer 1

A) Does not change the money supply.

Step-by-step explanation:

Demand deposits change the monetary base, because the monetary base equals currency plus demand deposits.

However, in itself, a demand deposit does not change the money supply. For the change in the money supply to occur, the bank must loan out some of the money in the deposit.