When part of the quantity of money is held in currency, then
A) there is a higher level of excess reserves.
B) a currency drain occurs.
C) the Fed will find it beneficial to increase the discount rate.
D) the money multiplier will increase in value.

Question

Quizplus · Accepted Answer

When part of the quantity of money is held in currency, it is not deposited in a bank, which means there is less money available for banks to lend out. This creates a currency drain, which decreases the amount of money in circulation and can decrease the money multiplier.

When Part of the Quantity of Money Is Held in Currency