An increase in the currency drain
A) decreases the size of the money multiplier.
B) increases the size of the money multiplier.
C) increases the money supply.
D) decreases the required reserve ratio.
E) increases the desired reserve ratio.

Question

Quizplus · Accepted Answer

An increase in the currency drain means that people are holding more currency and depositing less into banks. This reduces the amount of reserves available for banks to create loans, which reduces the money multiplier. Therefore, choice A is the correct answer as it identifies the correct relationship between currency drain and the money multiplier.

An Increase in the Currency Drain