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

Question

Responses

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.
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.

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.

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.

Answer 1

The correct response is:

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.

When the money supply decreases, banks have less liquidity, making it more difficult for them to obtain cash for lending purposes. This reduction in liquidity can lead to tighter lending conditions, as banks may be more cautious and less willing to extend credit when they have fewer cash reserves.