The smaller the currency drain, the
A) smaller the increase in the quantity of money from an increase in reserves.
B) more likely it is that the banking system will hold a larger proportion of unplanned reserves.
C) the smaller the effect of a change in the discount rate.
D) larger the increase in the quantity of money from an increase in reserves.

Question

Quizplus · Accepted Answer

The smaller the currency drain, the larger the increase in the quantity of money from an increase in reserves because less money is being held by the public in the form of currency, allowing banks to lend out a greater proportion of their reserves, thereby increasing the money supply more effectively.

The Smaller the Currency Drain, the