Changes in the reserve requirement change the money multiplier and the money supply.

Question

Quizplus · Accepted Answer

Changes in the reserve requirement directly affect the money multiplier because the reserve ratio is a key component in its calculation. A lower reserve requirement increases the money multiplier, allowing banks to lend more, thereby increasing the money supply. Conversely, a higher reserve requirement decreases the money multiplier, reducing the ability of banks to lend, which decreases the money supply.

Changes in the Reserve Requirement Change the Money Multiplier and the Money