When part of the quantity of money is held in currency, then
A) a currency drain occurs.
B) there is a higher level of excess reserves.
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 available for banks to lend out and becomes a currency drain. This reduces the amount of money that can be created through the fractional reserve banking system, leading to a decrease in the money supply.

When Part of the Quantity of Money Is Held in Currency