The maximum change in the money supply created by a fractional reserve banking system decreases whenever reserve requirements are increased.

Question

Quizplus · Accepted Answer

This is true because an increase in reserve requirements means banks must keep a larger portion of their deposits as reserves and cannot lend out as much money. Therefore, less new money is created through loans and the maximum change in the money supply decreases.

The Maximum Change in the Money Supply Created by a Fractional