If the required reserve ratio decreases, the:
A) money multiplier increases.
B) money multiplier decreases.
C) amount of excess reserves the bank has decreases.
D) money multiplier stays the same.

Question

Quizplus · Accepted Answer

When the required reserve ratio decreases, banks are required to hold less reserves and are able to lend out more money. This increases the potential increase in the money supply through the money creation process, resulting in a larger money multiplier. Therefore, A is the correct choice.

If the Required Reserve Ratio Decreases, The