Which of the following reduces the money multiplier?
A)The Fed reduces the required reserve ratio.
B)Banks loan all their excess reserves.
C)Banks impose a currency drain on bank customers.
D)The Fed sells U.S. government securities.
E)Bank customers hold some of the loan proceeds as currency outside the banking system.

Question

Quizplus · Accepted Answer

Banks loan all their excess reserves, so there is no money multiplier effect. Bank customers holding some of the loan proceeds as currency outside the banking system reduces the money multiplier.

Which of the Following Reduces the Money Multiplier