Which of the following best describes the outcomes of a decrease in reserve requirements?
A)The reserve ratio decreases, the money multiplier decreases, and the money supply decreases.
B)The reserve ratio increases, the money multiplier increases, and the money supply increases.
C)The reserve ratio decreases, the money multiplier increases, and the money supply increases.
D)The reserve ratio increases, the money multiplier decreases, and the money supply decreases.

Question

Quizplus · Accepted Answer

When reserve requirements are decreased, banks are required to hold less money in reserves and have more money available to lend out. This leads to an increase in the money multiplier and an increase in the money supply. The reserve ratio, however, is decreased because banks are holding less money in reserves.

Which of the Following Best Describes the Outcomes of a Decrease