Everything else held constant,an increase in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________.

Question

Quizplus · Accepted Answer

An increase in the excess reserves ratio means banks are holding onto more reserves rather than lending them out. This decreases the money multiplier because there is less money being created through the lending process. Consequently, the overall money supply decreases as well.

Everything Else Held Constant,an Increase in the Excess Reserves Ratio