Currency withdrawals from the banking system
A) expand the money supply.
B) increase bank reserves by an equal amount.
C) reduce the legally required ratio of reserves to deposits.
D) reduce the amount of demand deposits the banking system can create.
E) leave the amount of legally required reserves held with the Fed unchanged.

Question

Quizplus · Accepted Answer

Currency withdrawals from the banking system reduce the amount of demand deposits, which in turn decreases the amount of money banks can create through loans. This is because banks have less reserves to work with, leading to a reduction in the money multiplier effect.

Currency Withdrawals from the Banking System