Final answer:
When the central bank raises the required reserve ratio, the money multiplier and the money supply decrease.
Step-by-step explanation:
When the central bank raises the required reserve ratio, it means that banks are required to hold a larger percentage of their deposits as reserves. This reduces the amount of money that banks can lend out, which in turn reduces the money multiplier. The money multiplier is the ratio of the change in the money supply to the change in the monetary base. So when the required reserve ratio is increased, the money multiplier decreases.
With a lower money multiplier, the money supply also decreases. This is because banks have less money available to lend out, which means there is less money circulating in the economy. The decrease in the money supply can have an impact on economic activity and interest rates.
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