If chartered banks lower their reserve ratio:

Question

Quizplus · Accepted Answer

Lowering the reserve ratio means that chartered banks are required to hold a smaller percentage of their deposits as reserves, which frees up more money for lending. This increases the potential for the money multiplier effect, where the initial increase in reserves can lead to a larger increase in the money supply through additional loans being made. Therefore, the size of the money multiplier will increase, making B the correct answer.

If Chartered Banks Lower Their Reserve Ratio