In general, for a given change in reserves, the smaller the required reserve ratio,

Question

Quizplus · Accepted Answer

The required reserve ratio determines the amount of reserves that banks must hold against their deposits. A decrease in the required reserve ratio means banks are required to hold less reserves against their deposits. As a result, banks can create more loans and deposits for a given amount of reserves. This means that a smaller required reserve ratio leads to a larger change in deposits and credit for a given change in reserves. Therefore, choice A is the best answer.

In General, for a Given Change in Reserves, the Smaller