An increase in the reserve ratio ______ the size of the monetary multiplier.

Reserve Ratio

The fraction of deposits a bank must hold in reserve and not lend out, as dictated by central banking regulations.

Monetary Multiplier

A mechanism that describes the increase in aggregate production and income that results from an injection of spending.

Understand the functional mechanisms of banking institutions, including the necessity for reserves.
Explain the impact of monetary policy instruments on economic conditions.

Verified Answer

Final Answer :

decreases

Learning Objectives

Understand the functional mechanisms of banking institutions, including the necessity for reserves.
Explain the impact of monetary policy instruments on economic conditions.