If households choose to take some fraction of each check they deposit and hold it as currency,then the simple deposit multiplier ________ the real-world multiplier.
A)is greater than
B)is less than
C)is equal to
D)bears no relationship to

Question

Quizplus · Accepted Answer

The simple deposit multiplier assumes all deposits are held at banks, not as currency. If households hold part of their deposits as currency, the actual multiplier effect in the real world is reduced, making the simple deposit multiplier greater than the real-world multiplier.

If Households Choose to Take Some Fraction of Each Check