If a bank keeps some of its excess reserves, the money multiplier:
A) increases.
B) stays the same.
C) goes to zero.
D) decreases.

Question

Quizplus · Accepted Answer

The money multiplier is the inverse of the reserve requirement. If banks keep some of their excess reserves, this means they are holding onto more reserves than required by the reserve requirement. As a result, the reserve ratio increases and the money multiplier decreases. Therefore, the correct answer is D.

If a Bank Keeps Some of Its Excess Reserves, the Money