If the required reserve ratio was lowered

Question

Quizplus · Accepted Answer

Lowering the required reserve ratio would mean that banks are required to hold less money in reserves and have more money available to lend. This would increase the size of the monetary multiplier, as banks would be able to lend out more money for every dollar they hold in reserve. Therefore, choice B is the correct answer. Choice A is incorrect as banks would be prompted to increase their lending, not reduce it. Choice C is also incorrect as the actual reserves of banks would decrease, not increase.

If the Required Reserve Ratio Was Lowered