Everything else held constant,an increase in the excess reserve ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

Question

Quizplus · Accepted Answer

An increase in the excess reserve ratio means banks are holding more reserves relative to their deposits, which decreases the amount of money they can lend out. This leads to a decrease in the M2 money multiplier because less money is being created through the lending process. Consequently, the M2 money supply also decreases because there is less money being circulated in the economy.

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