The money multiplier is much lower today than it was twenty-five years ago because:

Question

Quizplus · Accepted Answer

The money multiplier is calculated as 1/reserve requirement. If the currency-to-deposit ratio is high, banks need to hold more reserves in order to meet customers' cash demands, thus lowering the money multiplier. Therefore, B is the correct answer because it implies a higher reserve requirement due to a higher currency-to-deposit ratio. Choosing A or C would have the opposite effect, and D is not a relevant factor in determining the money multiplier.

The Money Multiplier Is Much Lower Today Than It Was