What must be true when people decide to hold some of their cash and not deposit it?
A) The money multiplier overestimates how much money will be created in the economy.
B) The money multiplier underestimates how much money will be created in the economy.
C) The reserve ratio is not fully functioning and should be raised.
D) The reserve ratio is working too well and should be lowered.

Question

Quizplus · Accepted Answer

When people decide to hold some of their cash and not deposit it, the money multiplier overestimates how much money will be created in the economy because the actual amount of deposits that banks can use to make loans is reduced.

What Must Be True When People Decide to Hold Some