An increase in the required reserve ratio, say from 10 to 12 percent would:
A)decrease the money supply by a substantial amount.
B)decrease the money supply by a small amount.
C)increase the money supply by a substantial amount.
D)increase the money supply by a small amount.

Question

An increase in the required reserve ratio, say from 10 to 12 percent would:
A)​decrease the money supply by a substantial amount.
B)​decrease the money supply by a small amount.
C)​increase the money supply by a substantial amount.
D)​increase the money supply by a small amount.

Quizplus · Accepted Answer

Increasing the required reserve ratio means that banks have to hold more money than before, which decreases the amount of money they can lend out. Therefore, there will be less money available in the economy, resulting in a decrease in the money supply.

An Increase in the Required Reserve Ratio, Say from 10