Which of the following reduces the money multiplier?
A) Banks loan all their excess reserves.
B) Bank customers hold some of the loan proceeds as currency outside the banking system.
C) The Reserve Bank sells government securities.
D) Banks impose a currency drain on bank customers.
E) Banks reduce the desired reserves ratio.

Question

Quizplus · Accepted Answer

When bank customers hold some of the loan proceeds as currency outside the banking system, it reduces the amount of money that can be re-deposited and re-loaned, thereby reducing the money multiplier effect.

Which of the Following Reduces the Money Multiplier