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

Question

Quizplus · Accepted Answer

When depositors hold more currency, less money is available for banks to lend out, reducing the money multiplier effect. Similarly, when banks hold more excess reserves, they lend out less, also reducing the expansion of deposits.

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