An increase in banks' desire for liquidity will

Question

Quizplus · Accepted Answer

When banks have a higher desire for liquidity, they will hold onto more of their deposits as reserves, which will decrease the amount of money they can lend out, thus decreasing the extent of monetary expansion. Additionally, because the value of the multiplier is inversely related to the reserve ratio, a higher reserve ratio will decrease the value of the multiplier. Therefore, both the extent of monetary expansion and the value of the multiplier will decrease.

An Increase in Banks' Desire for Liquidity Will