The larger the publicʹs currency drain from the banking system, the
A) smaller is the money multiplier.
B) larger is the monetary base.
C) larger is the money multiplier.
D) smaller is the monetary base.

Question

Quizplus · Accepted Answer

A larger currency drain means that more money is being held outside of the banking system, which reduces the amount of deposits that banks have available to lend out. This in turn reduces the money multiplier, which is the amount of money that can be created through the lending process. Therefore, choice A is the correct answer.

The Larger the Publicʹs Currency Drain from the Banking System