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Discuss whether a higher or lower reserve requirement would have a greater effect on the money...

Discuss whether a higher or lower reserve requirement would have a greater effect on the money supply, and explain why.

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Expert Solution

LOWER Reserve requirement will always have a GREATER EFFECT on the money supply because when the banks will be required to keep with lower Reserve requirement than it will be left with a higher amount in its hands to lend to the general public, and since the effect of money movement will be multiplying the overall effect of lower Reserve requirement will be immense on the money supply, and it will increase the money supply multifold.

The higher requirement of Reserve for the bank will mean that there will be lower money supply in the economy.

Hence lower Reserve requirement will have a greater effect on money supply.

jeff jeffy answered 2 years ago
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