An increase in the reserve ratio:

Question

increases the size of the spending income multiplier

decreases the size of the spending income multiplier

increases the size of the monetary multiplier

decreases the size of the monetary multiplier

Answer 1

An increase in the reserve ratio decreases the size of the monetary multiplier.

The reserve ratio is the fraction of deposits that banks are required to hold as reserves. When the reserve ratio increases, banks are required to hold more money in reserves and can lend out less. This leads to a smaller monetary multiplier effect, as there are fewer funds available for banks to lend out, which reduces the overall impact of changes in reserves on the money supply.