Which of the following is an outcome of a decrease in the reserve requirement ratio?
A)DIs must hold more reserves against the transaction accounts on their balance sheets.
B)DIs are able to lend a smaller percentage of their deposits.
C)Decreased credit availability in the economy.
D)A multiple contraction in deposits and a decrease in the money supply.
E)A multiplier effect on the supply of DI deposits and thus, the money supply.

Question

Quizplus · Accepted Answer

When the reserve requirement ratio is decreased, DIs are required to hold less in reserves against their deposits, which allows them to lend out more money. This creates a multiplier effect on the supply of DI deposits and the overall money supply in the economy.

Which of the Following Is an Outcome of a Decrease