Assume that total deposits in the banking system are $200 million. If the required reserve ratio is increased, then the money supply will:

Question

Quizplus · Accepted Answer

If the required reserve ratio is increased, banks will be required to hold more reserves, which leaves them with less money to lend out. This will decrease the amount of money that can be created through the money multiplier process, ultimately leading to a decrease in the money supply.

Assume That Total Deposits in the Banking System Are $200