When the required reserve ratio is lowered,
A) the money multiplier increases, and the amount of excess reserves increases in the banking system.
B) the money multiplier decreases, and the amount of excess reserves increases in the banking system.
C) the money multiplier decreases, and the amount of excess reserves decreases in the banking system.
D) the money multiplier increases, and the amount of excess reserves decreases in the banking system.
E) there is no change in either the money multiplier or the amount of excess reserves in the banking system.

Question

Quizplus · Accepted Answer

When the required reserve ratio is lowered, banks are required to hold less money in reserve, allowing them to lend more. This increases the money multiplier and the amount of excess reserves in the banking system.

When the Required Reserve Ratio Is Lowered