The quantity of money decreases if
A)the currency drain ratio increases.
B)the desired reserve ratio decreases.
C)banks loan all excess reserves.
D)the Treasury Department issues fewer government securities.
E)the Fed buys U.S.government securities.

Question

Quizplus · Accepted Answer

When the currency drain ratio (the amount of currency held by the public as a percentage of bank deposits) increases, banks need to hold more reserves to back up that currency. This means they have less excess reserves to lend out, which reduces the amount of money in circulation.

The Quantity of Money Decreases If