Everything else held constant,an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.

Question

Quizplus · Accepted Answer

An increase in the required reserve ratio on checkable deposits will decrease the M1 money multiplier. This is because the money multiplier is the reciprocal of the reserve requirement ratio. A higher reserve requirement ratio means that banks can lend out less of their deposits, leading to a decrease in the money supply.

Everything Else Held Constant,an Increase in the Required Reserve Ratio