For a given level of reserves, a decrease in the reserve requirement ratio will

Question

Quizplus · Accepted Answer

A decrease in the reserve requirement ratio will increase the excess reserves that banks hold. This means that they will have more funds available to lend out, which will eventually lead to an increase in the money supply. This also means that legal reserves and excess reserves will both decrease, but the net effect will be an increase in the money supply.

For a Given Level of Reserves, a Decrease in the Reserve