The larger the simple deposit multiplier,
A) the higher the required reserve ratio.
B) the higher the discount rate.
C) the larger the change in the money supply for a given change in deposits.
D) the less likely the Fed will be to use its monetary policy tools.

Question

Quizplus · Accepted Answer

The simple deposit multiplier is the reciprocal of the reserve ratio, so if the multiplier is larger, the required reserve ratio is smaller. This means that a given change in deposits will result in a larger change in the money supply. Therefore, option C is true. Option A is false because the required reserve ratio is smaller when the multiplier is larger. Option B is unrelated to the multiplier. Option D is also unrelated and not necessarily true.

The Larger the Simple Deposit Multiplier