# The larger the reserve ratio:?

(a) the larger the simple money multiplier, and the more money will be created in the economy.

(b) the larger the simple money multiplier, and the less money will be created in the economy.

(c) the smaller the simple money multiplier, and the more money will be created in the economy.

(d) the smaller the simple money multiplier, and the less money will be created in the economy.

Answer:
Think about, if the simple money multiplier is 1/RR and you increase it the smaller the multiplier will become.

ex if the Required Ratio is 20% then the multiplier would be 1/.2 or 5; for 40% => =1/.4 = 2.5

The formula for the creation of money or the formal name
Max Potential Money Supply = Total Reserves x 1/RR

ex. 5000=1000*5 for 20%
2500=1000*2.5 for 40%

So when you increase the RR then less money would be created in the economy.

So (D)

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