The deposit expansion multiplier is decreased if the Federal Reserve
A) buys government securities.
B) sells government securities.
C) lowers reserve requirements.
D) raises reserve requirements.

Question

Quizplus · Accepted Answer

The deposit expansion multiplier is the inverse of the reserve ratio. Therefore, when the reserve requirement is raised, the multiplier decreases. This means that banks are required to hold a larger portion of their deposits in reserve, which reduces the amount of money they can lend out and the money supply available to the economy.

The Deposit Expansion Multiplier Is Decreased If the Federal Reserve