Mechanisms Driving Money Multiplier Expansion

The money multiplier is inversely related to reserve ratios and cash-holding preferences. An increase in the banking habit of the people means they hold less cash physically and deposit more in commercial banks, expanding the credit creation base of the banking system. Increasing CRR or SLR forces banks to hold more reserves, reducing the multiplier effect. > A robust banking habit among the public fosters greater deposit velocity and higher credit-creation potential. Answer: (c).