Question: If borrowers take a portion of their loans as currency rather than checkable deposits, the maximum amount by which the commercial banking system can increase the money supply by lending will:

a) decrease because the legal reserve ratio varies directly with the amount of currency in circulation
b) increase because currency is the basis for all checkable deposit creation
c) decrease because the amount of reserves transferred to other banks will diminish
d) increase because commercial banks can lend by the reciprocal of the amount of currency in circulation

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