The existence of a currency drain from the banking system will, other things being equal:?The existence of a currency drain from the banking system will, other things being equal, A. have no effect on the ability of the banking system to expand the money supply. B. reduce the ability of the banking system to expand or contract the money supply. C. will only increase the ability of the... |
If the Federal Reserve were to "drain" money out of the existing supply, through selling securities and bonds previously bought, the money supply would contract. This would decrease the availability of funds within the banking system, thus decreasing the ability to expand the money supply through the fractional reserve banking system. Simply put, if there is less money, then there is less expansion. This leaves answer B as valid, except for the decreased ability to contract the money supply. The ability to contract the money supply is not dependent on the existing supply, therefore B is partially correct.
B. reduce the ability of the banking system to expand or contract the money supply.
only option showing them weaker. So.
