Why is the actual money multiplier smaller than the simple money multiplier?

Question

Quizplus · Accepted Answer

The actual money multiplier is smaller than the simple money multiplier because cash withdrawals reduce the amount of funds that banks have available to lend out, thereby reducing the money creation process. Therefore, choice (B) is the correct answer. The other choices are incorrect: (A) is incorrect because both the simple and actual multiplier calculations use the money supply measure M1, (C) is incorrect because withdrawals from chequable deposits reduce excess reserves, not increase them, and (D) is incorrect because both the simple and actual multiplier calculations use the same measure of desired reserves.

Why Is the Actual Money Multiplier Smaller Than the Simple