The money multiplier will decrease if the currency drain ratio

Question

Quizplus · Accepted Answer

The money multiplier is the reciprocal of the reserve requirement ratio (RRR), which is the ratio of required reserves to deposits. However, not all deposits are available for lending, as some are held as currency by the public. This is known as the currency drain ratio (CDR).

Therefore, the money multiplier is affected by both the RRR and CDR. If the CDR increases or the desired reserve ratio (DRR) increases, the money multiplier will decrease, as there will be less money available for lending. This is reflected in choice A.

The Money Multiplier Will Decrease If the Currency Drain Ratio