When the Federal Reserve increases the reserve ratio, the impact will be to a. increase the...
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When the Federal Reserve increases the reserve ratio, the impact will be to
a. increase the size of the spending multiplier.
b. increase the size of the money multiplier.
c. decrease the size of the money multiplier.
d. decrease the size of the spending multiplier.
Homework Answers
Reserve ratio is portion for amount that commercial bank has to minimum maintained and not to lend it or invest somewhere.
If other factors are held constant ,then it can be clearly seen by below formula that money multiplier and required reserve ratio are inverse to each other which means if reserve ratio increases by the Federal Reserve then money multiplier will decrease and vice versa.
So the answer is option D.
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