In a fractional-reserve banking system,a decrease in reserve requirements
A)increases both the money multiplier and the money supply.
B)decreases both the money multiplier and the money supply.
C)increases the money multiplier,but decreases the money supply.
D)decreases the money multiplier,but increases the money supply.

Question

Quizplus · Accepted Answer

Decreasing reserve requirements means that banks can hold less reserves, which increases their ability to lend out more money. This leads to an increase in the money multiplier, which in turn increases the money supply. Therefore, both the money multiplier and money supply increase.

In a Fractional-Reserve Banking System,a Decrease in Reserve Requirements