Suppose the required reserve ratio increased from 10% to 20%. This would:

Question

Quizplus · Accepted Answer

The required reserve ratio is the amount of reserves banks are required to hold against deposits. As the required reserve ratio increases from 10% to 20%, banks are required to hold more reserves against their deposits. This reduces the amount of funds available for lending, resulting in a decrease in the money multiplier from 10 to 5. Therefore, choice A is the correct answer. Choice B is incorrect because as the required reserve ratio increases, banks have less excess reserves available. Choice C is incorrect because an increase in the required reserve ratio reduces the money multiplier, not increases it. Choice D is incorrect because the increase in the required reserve ratio changes the money multiplier from 10 to 5.

Suppose the Required Reserve Ratio Increased from 10% to 20