An increase in the currency drain ratio
A)decreases the size of the money multiplier.
B)increases the size of the money multiplier.
C)increases the money supply.
D)decreases the required reserve ratio.
E)increases the desired reserve ratio.

Question

Quizplus · Accepted Answer

An increase in the currency drain ratio means that more people are holding cash outside the banking system, leading to a decrease in the amount of deposits that banks hold. This ultimately reduces the amount of money that banks can create through lending, which in turn reduces the size of the money multiplier.

An Increase in the Currency Drain Ratio