Assuming initially that the required reserve ratio = 10%,the currency-deposit ratio = 75%,and the excess reserve ratio = 156%,an increase in the required reserve ratio to 15% causes the M1 money multiplier to ________,everything else held constant.

Question

Quizplus · Accepted Answer

M1 money multiplier = 1 / required reserve ratio

Initial M1 money multiplier = 1/0.10 = 10

After the increase in required reserve ratio to 15%, the new M1 money multiplier will be:

1/0.15 = 6.67

Therefore, the M1 money multiplier decreases from 10 to 6.67 or by 33%.

Choice C is the only option that reflects the decrease in the M1 money multiplier.

Assuming Initially That the Required Reserve Ratio = 10%,the Currency-Deposit