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 Fed reduces the required reserve ratio
D) banks impose a currency drain on bank customers
E) the Fed sells U.S.government securities

Question

Quizplus · Accepted Answer

When bank customers hold some of the loan proceeds as currency outside the banking system, the money multiplier is reduced because the amount of currency in the economy increases while the amount of deposits available for banks to lend out decreases. This results in a decrease in the overall amount of money that can be created through the banking system.

Which of the Following Reduces the Money Multiplier