Which of the following impacts does changing the reserve requirement have on a nation's money supply?
A) Increasing the reserve requirement increases the money supply.
B) Decreasing the reserve requirement increases the money supply.
C) Changing the reserve requirement does not impact the nation's money supply.
D) Changing the reserve requirement does not have a consistent or predictable impact on the money supply.

Question

Quizplus · Accepted Answer

Decreasing the reserve requirement allows banks to lend out a greater portion of their deposits, effectively increasing the money supply through the money multiplier effect. Conversely, increasing the reserve requirement would decrease the money supply by limiting the amount banks can lend.

Which of the Following Impacts Does Changing the Reserve Requirement