An increase in the currency drain ________.
A) increases the size of the money multiplier
B) decreases the size of the money multiplier
C) increases the deposits in all banks
D) decreases the size of the monetary base
E) increases the size of the monetary base

Question

Quizplus · Accepted Answer

The currency drain refers to the amount of currency held by the public, which is outside the banking system. When there is an increase in currency drain, there is less money available for banks to lend and the size of the monetary base decreases. This, in turn, decreases the size of the money multiplier as banks have less money to loan out and create additional deposits. Therefore, option B is correct.

An Increase in the Currency Drain ________