If the central bank in some country lowered the reserve ratio, which of the following would happen to the money multiplier?
A)It would increase.
B)It would not change.
C)It would decrease.
D)It cannot be determined without additional information.

Question

Quizplus · Accepted Answer

Lowering the reserve ratio increases the amount of excess reserves that banks have available to lend out, which increases the potential size of the money supply. This leads to an increase in the money multiplier.

If the Central Bank in Some Country Lowered the Reserve