Assume that banks become more conservative in their lending policies, and start holding a larger proportion of liquid assets. What will be the effect on the bank deposits multiplier?

Question

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When banks become more conservative and hold a larger proportion of liquid assets, they lend out a smaller fraction of their deposits. This reduces the bank deposits multiplier, which is the process by which the banking system creates money through lending, because less money is being created for each unit of deposits.

Assume That Banks Become More Conservative in Their Lending Policies