If the Fed were to decrease the required reserve rate from ten percent to five percent, the simple deposit expansion multiplier would:

Question

Quizplus · Accepted Answer

The simple deposit expansion multiplier equals 1/rr where rr is the required reserve ratio. Thus, if the required reserve ratio decreases from 10% to 5%, the multiplier would increase from 1/0.1 to 1/0.05, which is equivalent to the multiplier doubling from 10 to 20. Therefore, the correct answer is A) Double.

If the Fed Were to Decrease the Required Reserve Rate