If the central bank injects liquidity through open market purchases but banks choose to hold all additional reserves as excess reserves, the money…

CA Foundation · Business Economics · MTP · January 2026
If the central bank injects liquidity through open market purchases but banks choose to hold all additional reserves as excess reserves, the money supply will:
(A) A. Increase multiple times
(B) B. Increase only by the initial injection
(C) C. Decrease
(D) D. Become indeterminate

Suggested Answer and Working Notes:

Correct Answer: Option (B)

B. Increase only by the initial injection

Topics: Money Market

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