A change in the reserve requirement changes
A)the monetary base.
B)the money multiplier.
C)the discount rate.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

A change in the reserve requirement will affect the amount of excess reserves that banks hold. This, in turn, affects the money multiplier, which determines the amount of money supply created from a given change in the monetary base. Changes in the discount rate are determined by the Federal Reserve and do not necessarily depend on changes in reserve requirements. Therefore, the correct choice is B, as a change in reserve requirements affects the money multiplier.

A Change in the Reserve Requirement Changes