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

Question

Quizplus · Accepted Answer

An increase in currency drain reduces the amount of reserves available in the banking system, which decreases the size of the money multiplier. This means that banks can lend out less money for every dollar in reserves they have. Therefore, choice B is correct. Choices A, C, and D are incorrect because they suggest effects that are opposite to the correct answer.

An Increase in the Currency Drain