If the Bank of Canada decreases the reserve requirement ratio from 20 percent to 10 percent,the money multiplier

Question

Quizplus · Accepted Answer

The reserve requirement ratio is the percentage of deposits that banks are required to hold in reserve. When this ratio decreases, banks are required to hold less money in reserve and can lend out more money. The money multiplier is calculated as 1/reserve requirement ratio, so when the reserve requirement ratio decreases from 20 percent to 10 percent, the money multiplier increases from 5 (1/0.20) to 10 (1/0.10).

If the Bank of Canada Decreases the Reserve Requirement Ratio