Which of the following reduces the money multiplier?
A)Banks loan all their excess reserves.
B)Bank customers hold some of the loan proceeds as currency outside the banking system.
C)The Fed reduces the required reserve ratio.
D)Banks impose a currency drain on bank customers.
E)The Fed sells U.S.government securities.

Question

Quizplus · Accepted Answer

When bank customers hold some of the loan proceeds as currency outside the banking system, the money multiplier is reduced. This is because the currency held outside the banking system does not contribute to the creation of new deposits and loans, which would have increased the money supply.

Which of the Following Reduces the Money Multiplier