The word that best describes the relationship between the required reserve ratio and the money supply is
A) direct.
B) constant.
C) inverse.
D) roundabout.

Question

Quizplus · Accepted Answer

The required reserve ratio is the percentage of deposits that banks are required to hold in reserve. Therefore, as the required reserve ratio increases, banks are required to hold a larger percentage of deposits, which reduces the amount of money that can be loaned out and decreases the money supply. As the required reserve ratio decreases, banks are allowed to hold a smaller percentage of deposits, which increases the amount of money that can be loaned out and expands the money supply. This relationship is inverse.

The Word That Best Describes the Relationship Between the Required