Homework Answers
Answer - The following two Options will occur -
K will rise
The base will rise
Since the reserves are recorded on the asset side of the balance sheet , the doubling of the reserves will increase the balance on the Liabilities side which is K. Hence the capital (k) will rise.
Reserves are included in the monetary base. Thus doubling the amount of reserves will increase the monetary base.
The demand deposits will not change as a result of this and M1 will fall or rise will depend upon the excess reserves which cannot be specified from here. Hence Option A and C will be correct.
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