The size of the effect of a given deposit of cash into a demand deposit account on the money supply is smaller:

Question

Quizplus · Accepted Answer

The size of the effect of a deposit of cash into a demand deposit account on the money supply is determined by the money multiplier, which is affected by the currency-to-deposit ratio and excess reserve ratio. The greater the fraction of money people want to hold as currency, the smaller the deposit multiplier, and the smaller the effect on the money supply. Similarly, the greater the fraction of deposits banks want to hold as excess reserves, the smaller the deposit multiplier, and the smaller the effect on the money supply. Therefore, choice A is the best choice.

The Size of the Effect of a Given Deposit of Cash