There is an inverse relationship between the required reserve ratio and the money supply.

Question

Quizplus · Accepted Answer

This is true as the required reserve ratio is the percentage of deposits that banks are required to hold in reserve and not lend out. Therefore, a lower required reserve ratio frees up more funds for lending, thus increasing the money supply. Similarly, an increase in the required reserve ratio would decrease the amount of loanable funds, leading to a decrease in the money supply.

There Is an Inverse Relationship Between the Required Reserve Ratio