Everything else held constant,a decrease in the currency ratio will mean ________ in the M1 money multiplier and ________ in the M2 money multiplier.

Question

Quizplus · Accepted Answer

The currency ratio affects the M1 and M2 money multipliers by determining how much currency is held by the public versus how much is held as reserves by banks. A decrease in the currency ratio means that more money is being held in banks as reserves rather than in currency by the public. This increases the base for the money multiplier effect, leading to an increase in both the M1 and M2 money multipliers.

Everything Else Held Constant,a Decrease in the Currency Ratio Will