Which of the following best describes the consequences of an increase in reserve requirements?
A)The reserve ratio increases, the money multiplier increases, and the money supply increases.
B)The reserve ratio increases, the money multiplier decreases, and the money supply decreases.
C)The reserve ratio decreases, the money multiplier increases, and the money supply increases.
D)The reserve ratio decreases, the money multiplier decreases, and the money supply increases.

Question

Quizplus · Accepted Answer

An increase in reserve requirements means banks have to hold more reserves, which decreases the amount they can lend out. This reduces the money multiplier and decreases the money supply. Therefore, option B is the correct answer, which describes the consequences of an increase in reserve requirements as the reserve ratio increases, the money multiplier decreases, and the money supply decreases.

Which of the Following Best Describes the Consequences of an Increase