If the desired reserve ratio rises, the money multiplier
A) decreases.
B) increases.
C) stays the same.
D) probably changes but more information is needed to determine if it increases or decreases.

Question

Quizplus · Accepted Answer

When the desired reserve ratio rises, banks hold more reserves for each dollar of deposits, which means there is less capacity to create new money through the lending process. This leads to a decrease in the money multiplier.

If the Desired Reserve Ratio Rises, the Money Multiplier