If the money multiplier decreased from 20 to 12.5,then
A)the Fed increased the reserve ratio from 5 percent to 8 percent.
B)the Fed increased the fed funds rate from 5 percent to 8 percent.
C)the Fed decreased the reserve ratio from 8 percent to 5 percent.
D)the Fed decreased the fed funds rate from 8 percent to 5 percent.

Question

Quizplus · Accepted Answer

The money multiplier is inversely related to the reserve ratio. An increase in the reserve ratio from 5% to 8% would decrease the money multiplier from 20 to 12.5.

If the Money Multiplier Decreased from 20 to 12