An increase in the currency drain
A) leads to an increase in excess reserves.
B) decreases the size of the money multiplier.
C) results in an increase in deposits.
D) results in an increase in required reserves.

Question

Quizplus · Accepted Answer

An increase in the currency drain (people holding more cash outside the banking system) decreases the size of the money multiplier because it reduces the amount of funds available for banks to lend out, thereby reducing the overall creation of money through the banking system's lending process.

An Increase in the Currency Drain