In the months of November and December, people in the United States hold a larger part of their money in the form of currency because they intend to shop and travel for the holidays. As a result, other things the same, the money supply increases.

Question

BlackTom AI · Accepted Answer

Currency held by the public (C) is a direct component of common money measures (e.g., M1 = C + D, where D = checkable deposits). A change in the public’s preference for holding cash rather than deposits typically rearranges the composition of the money supply, not its total, if all else is held constant.

1) Relevant concepts
- Money supply (M1): currency in circulation + checkable deposits.
- Ceteris paribus (“other things the same”): no central bank action, no change in bank reserves or lending behavior beyond the deposit–withdrawal.
- Balance-sheet identity: M = C + D.

2) Step-by-step reasoning
- Assume initial money supply M = C + D.
- During November–December people withdraw deposits to hold more currency: let the amount withdrawn be x.
- New currency C' = C + x. New deposits D' = D − x (because withdrawals reduce deposits by the same amount).

3) Calculations / intermediate steps
- M' = C' + D' = (C + x) + (D − x) = C + D = M.
- Thus M' = M: the total money supply is unchanged.

4) Why the correct answer is correct
- Because withdrawing deposits to hold cash shifts money between forms (deposits → currency) without changing the sum C + D, the money supply does not increase when only the public’s composition preference changes and no other monetary factors change.

5) Why the other option is incorrect
- Choosing “True” assumes that simply holding more currency increases the money supply; it ignores the corresponding reduction in bank deposits. Unless the central bank or banks change reserves or lending (not allowed under “other things the same”), there is no net increase.

6) Conclusion
- Therefore the statement is False, which matches the provided answer.

In the months of November and December, people in the United States hold a larger part of their money in the form of currency because they intend to shop and travel for the holidays. As a result, other things the same, the money supply increases.单项选择题

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