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Suppose that many banks begin to experience liquidity issues because of default on loans. Many become more hesitant to leave their money in bank checking
Suppose that many banks begin to experience liquidity issues because of default on loans. Many become more hesitant to leave their money in bank checking accounts. They decide instead to hold money as physical currency. What effect would this have on the money multiplier?
money multiplier increases because currency deposit ratio increases
money multiplier decreases because currency deposit ratio increases
the effect on the money multiplier is ambiguous because we must know the required reserve ratio
the money multiplier will stay the same because changes in the currency deposit ratio do not effect the multilpier
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