Bank surplus reserves will grow and the money multiplier will decline when the required reserve ratio is reduced. The necessary reserve ratio for Best National Bank is 10%. This bank might issue new loans totaling $900 if it received a new $1,000 checkable deposit.
The number of reservable liabilities that commercial banks must keep rather than lend out or invest is known as the reserve ratio. The central bank of the nation, in this case, the Federal Reserve in the United States, sets this criterion.
In the absence of additional measures, raising the reserve requirement ratio lowers the number of deposits that can be maintained by a certain level of reserves, lowers the money supply, and rises the cost of credit.
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