Question

Everything else held​ constant, if the sum of the required reserve ratio and the excess reserve ratio is less than​ one, a decrease in the currencydashdeposit ratio causes the M1 money multiplier to​ ________ and the money supply to​ ________.

Answer 1

a decrease in the currency-deposit ratio causes the M1 money multiplier to​ DECREASE and the money supply to​ DECREASE.

Step-by-step explanation:

The currency-deposit ratio measures how much currency the banks' clients hold in the banks. A decrease in the currency-deposit ratio will always decrease the money multiplier because banks will hold less money. Inversely, an increase in the currency-deposit ratio will increase the money multiplier.

Banks "create" money when they receive deposits and then lend them to other clients, but if the amount of deposits decreases, the bank's money creating capacity decreases.