Suppose a major hurricane threatens the Gulf of Mexico coast of the southern US, and individuals withdraw large amounts of cash from their checking accounts in anticipation of electrical outages and disruptions in banking services. What impact does this event have on the banking system? A. Monetary base and reserves decline B. Monetary base unchanged and reserves decline C. Monetary base increases and reserves decline D. Monetary base and reserves increas
QUESTION 11
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Suppose a major hurricane threatens the Gulf of Mexico coast of the southern US, and individuals withdraw large amounts of cash from their checking accounts in anticipation of electrical outages and disruptions in banking services. What impact does this event have on the banking system?
A. Monetary base and reserves decline
B. Monetary base unchanged and reserves decline
C. Monetary base increases and reserves decline
D. Monetary base and reserves increase
Money reserves are defined as the holding of currencies, metals along with other assets that are liquid in nature. They are used for redemption of national currencies and deposits and also for meeting up current and future financial obligations from the central bank of a country, government treasury and other monetary authorities.
Monetary base refers to the total amount of currency which is there in the circulation, with the public or in the form of deposits in the commercial banks that is held as reserve in the central bank. It is the total amount of money created by the central banks.
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