The ________ the reserve ratio, the ________ the simple deposit multiplier.
A)smaller; smaller
B)smaller; larger
C)larger; larger
D)smaller; greater likelihood there is no change in

Question

Quizplus · Accepted Answer

The inverse relationship between reserve ratio and simple deposit multiplier is captured by the money multiplier equation: Simple Deposit Multiplier = 1/Required Reserve Ratio. So, as the reserve ratio decreases (gets smaller), the simple deposit multiplier increases (gets larger). Therefore, the correct answer is B, smaller reserve ratio leads to a larger simple deposit multiplier.

The ________ the Reserve Ratio, the ________ the Simple Deposit

The the Reserve Ratio, the the Simple Deposit