If the general public decide to keep a greater proportion of their savings in their wallets...

If the general public decide to keep a greater proportion of their savings in their wallets rather than in their savings accounts in the banking sector, then the money multiplier will increase and banks can ‘create’ more money. Correct this statement and provide for a brief example proving your case. Just answer the question and start by telling us which version you have Correct the mis-statement and provide for an example proving why your correction is valid. Short, and straight to the point.

Expert Solution

Answer : The correct statement is that if the general public decided to keep a greater proportion of their savings in the wallet rather than saving account in the bank which than money multiplier will decrease and bank can create less money.

The conversion that if checkable deposit has been change into the currency than reduces the money multiplier by taking away some money as well as amount of deposits from the bank.

Example : As earlier Deposit in bank A is $500 and reserve ratio 10℅ than money multiplier is 1/0.10= 10 and when deposit has decrease is $450 than reserve ratio is 8% than money multiplier =1/0.12=8 . This show that as deposit decrease than money multipler decrease as money supply from the bank has been drastically changes.

The correction is valid because money supply has been decreases which results in money multiplier has been decrease with the decrease in money multiplier.

Rahul Sunny answered 2 years ago

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