A decrease in the reserve ratio increases the:

Question

amount of actual reserves in the banking system

amount of excess reserves in the banking system

number of government securities held by the Central Banks

ratio of coins to paper currency in the economy

Answer 1

A decrease in the reserve ratio increases the:

amount of excess reserves in the banking system.

When the reserve ratio is lowered, banks are required to keep fewer reserves relative to their deposits, allowing them to lend more money, which increases the amount of excess reserves available in the banking system. This can lead to more money being created through the lending process.