Question

a. Suppose that banks have decided they need to keep a reserve ratio of 10%—this guarantees that they’ll have enough cash in ATMs to keep depositors happy, and enough electronic deposits at the Federal Reserve so that they can redeem checks presented by other banks. What is the money multiplier in this case? 802 b. If depositors start visiting the ATM a lot more often, will banks want to have a higher reserve ratio or a lower reserve ratio? Will this increase the money multiplier or lower it? 4. If the Federal Reserve wants to lower interest rates via

Answer 1

A. The money multiplier is the amount of money supply with each dollar increase in reserves. so, it is correct.

b.- Since there is an inverse relationship between the reserve ratio and the money multiplier, a higher reserve ratio leads to a lower money multiplier. So increase the ratio and lower the money.