A currency drain
A) leads to an increase in excess reserves.
B) results in an increase in deposits.
C) decreases the size of the money multiplier.
D) results in an increase in required reserves.

Question

Quizplus · Accepted Answer

A currency drain refers to the withdrawal of currency by individuals and businesses from their bank accounts. This leads to a decrease in the amount of deposits held by banks, which in turn decreases the amount of money that can be created through the money multiplier process. Therefore, a currency drain results in a decrease in the size of the money multiplier.

A Currency Drain