If the monetary authorities want to lower the size of the monetary multiplier,they should

Question

Quizplus · Accepted Answer

The monetary multiplier is inversely related to the legal reserve ratio. Therefore, if the monetary authorities want to lower it, they should raise the legal reserve ratio. This would reduce the amount of money banks can create through lending and therefore decrease the size of the monetary multiplier. Lowering the legal reserve ratio, on the other hand, would increase the multiplier. Increasing bank reserves would have no effect on the size of the monetary multiplier unless it is accompanied by a change in the legal reserve ratio. Taking none of these actions would also not affect the monetary multiplier.

If the Monetary Authorities Want to Lower the Size of the Monetary