In 1991,the Federal Reserve lowered the reserve requirement from 12 percent to 10 percent.Other things the same this should have
A)increased both the money multiplier and the money supply.
B)decreased both the money multiplier and the money supply.
C)increased the money multiplier and decreased the money supply.
D)decreased the money multiplier and increased the money supply.

Question

Quizplus · Accepted Answer

Lowering the reserve requirement from 12% to 10% means banks are required to hold less reserves and can lend out more money. This increases the money multiplier, which in turn increases the money supply. Therefore, choice A is the correct answer.

In 1991,the Federal Reserve Lowered the Reserve Requirement from 12