An increase in the parameter, c, the proportion of money individuals wish to hold as currency, will tend to cause which of the following?

Question

Quizplus · Accepted Answer

An increase in the parameter, c, means individuals are holding more money in the form of liquidity and less in the form of deposits. This leads to a decrease in the excess reserves of banks since they now have fewer funds to lend out. As a result, the money multiplier decreases, causing a smaller increase in the money supply for a given increase in the monetary base.

An Increase in the Parameter, C, the Proportion of Money