What happens to the monetary base if people, fearing a bank run, convert their checking deposits...

What happens to the monetary base if people, fearing a bank run, convert their checking deposits into currency holdings?

Expert Solution

The monetary base does not change as such. The monetary base is made up of non-bank public currency as well as reserves. When people withdraw funds from their checking accounts banking system reserves decrease but are soon going to be replaced by increases in currency so the net amount in the monetary base is not changed.

Rahul Sunny answered 2 years ago

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