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

Question

Quizplus · Accepted Answer

When reserve requirements are decreased, banks are required to hold less reserves and can loan out more money, increasing the money multiplier. This leads to an increase in the money supply. The reserve ratio decreases because banks are holding a smaller percentage of their deposits as reserves.

Which of the Following Best Describes the Consequences of a Decrease