A lower required reserve ratio results in an increase in the money supply; a higher required reserve ratio results in a decrease in the money supply.

Question

Quizplus · Accepted Answer

A lower required reserve ratio allows banks to lend out a larger portion of their deposits, thereby increasing the money supply. Conversely, a higher required reserve ratio means banks must hold a larger portion of deposits as reserves, reducing the amount they can lend out, which decreases the money supply.

A Lower Required Reserve Ratio Results in an Increase in the Money