Constraints on deposit creation include all of the following except:
A) An increase in the money multiplier.
B) The lack of interest in borrowing money on the part of individuals.
C) The decision by individuals to stop depositing money in transaction accounts.
D) An increase in the reserve requirement.

Question

Quizplus · Accepted Answer

An increase in the money multiplier actually facilitates deposit creation rather than constraining it. The money multiplier effect allows banks to lend out a significant portion of deposits, which in turn generates more deposits through the lending process. Constraints on deposit creation typically include factors that reduce the ability of banks to lend or individuals to deposit, such as a lack of interest in borrowing (B), individuals not depositing money (C), or an increase in reserve requirements (D) which limits the amount banks can lend out.

Constraints on Deposit Creation Include All of the Following Except