Describe how changes to the money supply affect the bank's ability to lend to customers.(1 point)

Question

Responses

An increase in the money supply increases the ability for securities to be sold to other banks for other assets. The liquidity in the markets increases as a result and banks have more ability to lend.
An increase in the money supply increases the ability for securities to be sold to other banks for other assets. The liquidity in the markets increases as a result and banks have more ability to lend.

An increase in the money supply decreases the ability for assets to be sold for securities. The liquidity in the markets decreases as a result and banks have less ability to lend.
An increase in the money supply decreases the ability for assets to be sold for securities. The liquidity in the markets decreases as a result and banks have less ability to lend.

A decrease in the money supply decreases the ability for assets and securities to be turned to cash. The liquidity in the markets decreases as a result and the bank has less ability to lend.
A decrease in the money supply decreases the ability for assets and securities to be turned to cash. The liquidity in the markets decreases as a result and the bank has less ability to lend.

A decrease in the money supply increases the ability for assets and securities to be turned to cash. The liquidity in the markets increases as a result and the bank's ability to lend increases.

Answer 1

Overall, changes in the money supply can impact a bank's ability to lend to customers by affecting liquidity in the markets. An increase in the money supply can lead to more liquidity, making it easier for banks to sell securities and other assets, thus increasing their ability to lend. On the other hand, a decrease in the money supply can reduce liquidity, making it harder for banks to convert assets into cash and therefore limiting their ability to lend. So, changes in the money supply can have a direct impact on a bank's lending capabilities.