As the required reserve ratio is decreased the money multiplier ?
Correct answer: C. increase
- A. could either increase or decrease
- B. decrease
- C. increase
- D. remain the same, as long as bank hold no excess reserves
Explanation
With no excess reserves, the simple money multiplier is the reciprocal of the required reserve ratio. Lowering that ratio therefore raises the multiplier and permits a larger deposit expansion.
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