The money multiplier is greater than one because banks:
A) hold the entire amount of deposits as reserves.
B) do not lend any of deposits out as loans.
C) hold only a fraction of deposits as reserves.
D) borrow loans from the Federal Reserve.

Question

Quizplus · Accepted Answer

Banks hold only a fraction of deposits as reserves and lend out the rest as loans. This allows multiple individuals to have access to the original deposit, creating a multiplier effect on the money supply.

The Money Multiplier Is Greater Than One Because Banks