If the ratio of excess reserves to total deposits that banks desire to hold increases,
A) the value of the autonomous spending multiplier will decrease.
B) the value of the money multiplier will increase.
C) the value of the money multiplier will not change.
D) the value of the money multiplier will decrease.

Question

Quizplus · Accepted Answer

When banks desire to hold a higher ratio of excess reserves to total deposits, they lend out a smaller portion of their deposits. This reduces the money multiplier because less money is being created from each dollar of reserves.

If the Ratio of Excess Reserves to Total Deposits That