Assume that banks hold no excess reserves. A decrease in the required reserve ratio will cause total reserves in banks, the money multiplier, and the money supply to change in which of the following ways?
a. Total Reserves (Increase); Money Multiplier (No change); Money Supply (Increase)
b. Total Reserves (No change); Money Multiplier (Increase); Money Supply (Increase)
c. Total Reserves (Decrease); Money Multiplier (Decrease); Money Supply (Decrease)
d. Total Reserves (Increase); Money Multiplier (Increase); Money Supply (Increase)
e. Total Reserves (No change); Money Multiplier (Increase); Money Supply (Decrease)b. Total Reserves (No change); Money Multiplier (Increase); Money Supply (Increase)

Question

10-12-2022
Business

contestada

Assume that banks hold no excess reserves. A decrease in the required reserve ratio will cause total reserves in banks, the money multiplier, and the money supply to change in which of the following ways?
a. Total Reserves (Increase); Money Multiplier (No change); Money Supply (Increase)
b. Total Reserves (No change); Money Multiplier (Increase); Money Supply (Increase)
c. Total Reserves (Decrease); Money Multiplier (Decrease); Money Supply (Decrease)
d. Total Reserves (Increase); Money Multiplier (Increase); Money Supply (Increase)
e. Total Reserves (No change); Money Multiplier (Increase); Money Supply (Decrease)b. Total Reserves (No change); Money Multiplier (Increase); Money Supply (Increase)

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smecloudbird18 smecloudbird18 · Answer 1 · 2022-12-17T06:17:56+01:00

If the banks holds no excess reserves and the decrease in the required reserve ratio then there is no change in total reserves, increase in money multiplier and money supply.

Hence the correct option is b.

When a dollar gets deposited in bank, the total reserve of the bank increases. In the given situation bank has no excess reserve and there is a decrease in the required reserve ratio therefore there will be no change in total reserve whereas money multiplier and money supplier will increase.

Money multiplier is the amount of money which was developed by banks through deposits excluding the amount of reserves from the deposit which must increase in the given situation.

Money supply is the amount of money which is in circulation in bank which must increase in the given situation.

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