Asked by Ashley Mayorga-Lara on Jul 25, 2024
Verified
An increase in the reserve ratio
A) increases the size of the income multiplier.
B) decreases the size of the income multiplier.
C) increases the size of the deposit expansion multiplier.
D) decreases the size of the deposit expansion multiplier.
E) does not affect the size of the deposit expansion multiplier.
Reserve Ratio
The fraction of deposits that banks are required to keep on hand as reserves, determined by central banking authorities.
Deposit Expansion Multiplier
The ratio that describes the potential increase in money supply through the banking system via fractional reserve banking.
- Comprehend the impact that reserve requirements have on the capacity of banks to lend.
Verified Answer
AF
Ariana FotoohiJul 31, 2024
Final Answer :
D
Explanation :
An increase in the reserve ratio decreases the amount of loans banks can make, which reduces the deposit expansion multiplier. Therefore, the correct answer is D.
Learning Objectives
- Comprehend the impact that reserve requirements have on the capacity of banks to lend.