A decrease in reserve requirement without any charge in banks holding of excess reserves will -increase...
A decrease in reserve requirement without any charge in banks holding of excess reserves will
-increase money multiplier
-decrease money multiplier
-increase monetary base
Homework Answers
ANSWER- OPTION 1
Increase money multiplier
Explanation- Money multiplier is calculated as 1/ reserve rate.
Suppose the reserve rate is 20% , then money multiplier will be 1/ 20% = 5
when the reserve rate will be decreased to 10%, then the money multiplier will be 1/10%= 10
Hence due to the decrease in the reserve requirement, the money multiplier will increase.
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A decrease in reserve requirement without any charge in banks
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