A decrease in the reserve requirement causes

Question

a. reserves to rise.
b. reserves to fall.
c. the money multiplier to rise.
d. the money multiplier to fall.
e. none of the above.

Answer 1

A decrease in the reserve requirement causes:

c. the money multiplier to rise.

When the reserve requirement is lowered, banks can hold less in reserves and lend out more money, which increases the money supply and effectively increases the money multiplier.