The value of the deposit multiplier is increased if individuals hold all their money in cash.

Question

Quizplus · Accepted Answer

The deposit multiplier is the amount of money that can be created by banks through the process of lending and deposit creation. If individuals hold all their money in cash, it reduces the amount of money available to be deposited in banks, which in turn reduces the potential for banks to create new loans and increase the deposit multiplier. Therefore, holding money in cash decreases the deposit multiplier, not increases it.

The Value of the Deposit Multiplier Is Increased If Individuals