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Having deposit insurance will _____ the cash-deposit ratio and hence ______ the money multiplier. a) increase;...

Having deposit insurance will _____ the cash-deposit ratio and hence ______ the money multiplier.

a) increase; increase b) decrease; increase c) increase; decrease d) decrease; decrease

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Answer #1

answer is a)because as depositing in insurance will definetly increase cash deposit ratio but the money multiplier will be high.The Money Multiplier refers to how an initial deposit can lead to a bigger final increase in the total money supply. The size of the multiplier depends on the percentage of deposits that banks are required to hold as reserves.The deposit multiplier is different from the money multiplier which reflects the change in a nation's money supply created by the loan of capital beyond a bank's reserve

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