Which statement best describes the outcomes of a decrease in reserve requirements?
A) The reserve ratio decreases, the money multiplier decreases, and the money supply decreases.
B) The reserve ratio increases, the money multiplier increases, and the money supply increases.
C) The reserve ratio decreases, the money multiplier increases, and the money supply increases.
D) The reserve ratio increases, the money multiplier decreases, and the money supply decreases.

Question

Quizplus · Accepted Answer

A decrease in reserve requirements means banks are required to hold fewer reserves, which increases the amount of excess reserves they have available to lend. This leads to an increase in the money multiplier, as each dollar of reserves can support more lending, and ultimately leads to an increase in the money supply.

Which Statement Best Describes the Outcomes of a Decrease in Reserve