The greater the required reserve ratio, the
A) higher is the spending multiplier.
B) lower is the spending multiplier.
C) lower is the monetary multiplier.
D) higher is the monetary multiplier.

Question

Quizplus · Accepted Answer

The required reserve ratio directly affects the monetary multiplier, which is the amount of money banks can effectively create with each dollar of reserves. A higher required reserve ratio means banks must hold more reserves and can lend out less of each deposit, leading to a lower monetary multiplier.

The Greater the Required Reserve Ratio, the