How Would an Increase in the Required Reserve Ratio Affect

question 162

Multiple Choice

How would an increase in the required reserve ratio affect banks' ability to create money?

• A) Banks will be able to create more money because of the decrease in excess reserves.
• B) Banks will be able to create more money because of the increase in the demand deposit multiplier.
• C) It will have no effect on banks' ability to create money.
• D) It will reduce banks' ability to create money by forcing them to hold more reserves.
• E) It will reduce the banks' ability to create money by increasing excess reserves.

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Definitions:

Pay Cash

The act of settling a transaction or purchasing goods and services by using physical currency or digital equivalents thereof.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations by comparing current assets to current liabilities.

Inventory Turnover Ratio

A measure of how frequently a company sells and replaces its inventory over a certain period; calculated as cost of goods sold divided by the average inventory.

Inventory Turnover Ratios

A financial metric indicating the number of times a company’s inventory is sold and replaced over a specified period, critical for evaluating inventory efficiency.