If the monetary base does not change and the desired reserve ratio increases,the money multiplier ________ and the quantity of money ________.
A)increases;increases
B)increases;decreases
C)decreases;increases
D)decreases;decreases
E)decreases;does not change

Question

Quizplus · Accepted Answer

If the desired reserve ratio increases, then banks will need to hold more reserves, which will decrease the amount of money they can lend out. Therefore, the money multiplier will decrease and the quantity of money will decrease as well. Since the monetary base is not changing, this change in the money multiplier will lead to a decrease in the quantity of money in the economy.

If the Monetary Base Does Not Change and the Desired