The value of the simple money multiplier tends to be greater when individuals hold less cash.

Question

Quizplus · Accepted Answer

The simple money multiplier formula is 1/reserve requirement ratio. When individuals hold less cash, banks have more funds to lend out, which increases the deposit base and ultimately the lending capacity of banks. Thus, a decrease in cash holdings leads to a lower reserve requirement ratio, which in turn increases the simple money multiplier.

The Value of the Simple Money Multiplier Tends to Be