Decisions by depositors to increase their holdings of ________,or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts.

Question

Quizplus · Accepted Answer

When depositors increase their holdings of currency or when banks hold excess reserves, the money multiplier effect is reduced, leading to a smaller expansion of deposits than the simple model predicts. This is because both actions reduce the amount of funds available for lending, which in turn decreases the potential for deposit creation through the banking system.

Decisions by Depositors to Increase Their Holdings of ________,Or of Banks