Which of the following would cause the actual deposit expansion multiplier to be less than its potential?
A)the general public holding of funds in the form of currency rather than bank deposits
B)the holding of excess reserves by commercial banks
C)the general public holding of funds in the form of coins rather than bills
D)both a and b

Question

Quizplus · Accepted Answer

The actual deposit expansion multiplier is reduced when the public holds more currency instead of deposits (A) and when banks hold excess reserves instead of lending them out (B). Both actions decrease the amount of money that can be created through the banking system.

Which of the Following Would Cause the Actual Deposit Expansion