An increase in cash drain will cause a(n) ____ in the deposit multiplier and a(n) ____ in the money supply.

Question

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An increase in cash drain (people holding more cash relative to deposits) decreases the deposit multiplier because banks have less base money to support new loans. This, in turn, decreases the money supply as there is less money being created through the banking system's lending process.

An Increase in Cash Drain Will Cause A(n) ____ in the Deposit