The currency-deposit ratio is determined by:
A) the Federal Reserve.
B) business policies of banks and the laws regulating banks.
C) preferences of households about the form of money they wish to hold.
D) the Federal Deposit Insurance Corporation (FDIC).

Question

Quizplus · Accepted Answer

The currency-deposit ratio is the amount of currency that households and businesses hold divided by the amount of checking account deposits they hold at banks. This ratio is mostly determined by the preferences of households and businesses about the form of money they wish to hold. The ratio can be affected by changes in interest rates or changes in the perceived safety of bank deposits, but ultimately it is a reflection of individual choices. The other options listed (Federal Reserve, business policies of banks, and FDIC) may influence the broader banking system, but they do not directly determine the currency-deposit ratio at the individual level.

The Currency-Deposit Ratio Is Determined By