Question

If+the+central+bank+increases+the+amount+of+reserves+banks+are+required+to+hold+to+20%,+then:______.

Answer 1

If the central bank increases the amount of reserves banks are required to hold to 20%, then both the money multiplier and money supply in the economy will decrease.

What is Money Supply?

• All the money and other liquid assets present in an economy on the measurement date are referred to as the money supply. The money supply roughly consists of deposits that can be utilized virtually as easily as cash in addition to actual currency.
• Governments issue coin and paper money through a mix of national treasuries and central banks.
• By dictating to banks what reserves they must maintain, how to offer credit, and other financial issues, bank regulators have an impact on the amount of money that is available to the general people.
• The amount of money circulating in an economy is referred to as the "money supply."
• Numerous money supply measurements also factor in non-cash assets like credit and loans.
• Increases in the money supply, according to monetarists, always result in inflation.

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