Final answer:
When Bank A borrows reserves from Bank B, it does not directly lead to an increase in the money supply. The reserve requirement set by the central bank determines the ability of banks to create new money through lending. If the reserve requirement increases, the money multiplier process decreases, reducing the overall money supply in the economy.
Step-by-step explanation:
When Bank A borrows reserves from Bank B, Bank A's reserves increase. However, this increase in reserves does not directly lead to an increase in the money supply. The money supply is determined by the ability of banks to create new money through lending, which is influenced by the reserve requirement set by the central bank.
If the reserve requirement increases, banks are required to hold a larger portion of their deposits as reserves. This reduces the amount of money banks can lend and the overall money supply in the economy. As a result, an increase in the reserve requirement would decrease the money multiplier process, as it restricts banks' ability to create new money through loans.