If, during a deposit expansion, not all money is re-deposited into the banking system and some leaks out as currency, then the real world multiplier is:
A)smaller than 1/RR.
B)larger than 1/RR.
C)equal to 1/RR.
D)not related to 1/RR.

Question

Quizplus · Accepted Answer

The real world multiplier is the ratio of the total increase in money supply to the initial increase in reserves. If not all of the money is re-deposited and some leaks out as currency, the total increase in money supply will be smaller than it would have been if all the money had been re-deposited. Therefore, the real world multiplier will be smaller than 1/RR.

If, During a Deposit Expansion, Not All Money Is Re-Deposited