The total expansion in the money supply can be less than is predicted by the deposit expansion multiplier if
A)banks choose to hold some excess reserves rather than lending all excess reserves.
B)some individuals prefer to hold cash instead of depositing their money in banks.
C)instead of a monopoly banking system,there are many banks.
D)both a and b are correct.

Question

Quizplus · Accepted Answer

Both options A and B are correct. If banks choose to hold some excess reserves, they will not lend all of the excess reserves they have, which will result in a lower deposit expansion multiplier. Similarly, if individuals prefer to hold cash instead of depositing their money in banks, the money supply will not expand as much as predicted by the deposit expansion multiplier.

The Total Expansion in the Money Supply Can Be Less