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.
E) amount of excess reserves stays the same.

Question

Quizplus · Accepted Answer

When the required reserve ratio decreases, banks are required to hold less in reserves and are able to lend out more money. This increases the money multiplier, which is the amount of money that can be created through the lending process. As a result, the answer is A, the money multiplier increases.

If the Required Reserve Ratio Decreases, The