How do changes in the desired reserve ratio affect the money

How do changes in the desired reserve ratio affect the money multiplier?

Solution

Money multiplier represents the maximum extent to which money supply could increase based on the reserve ratio.

The formula for money multiplier is:

Money multiplier = 1/ reserve ratio.

There\'s an inverse relationship between money multiplier and reserve ratio. So, an increase in the reserve ratio would reduce money supply, whereas, a reduction in the reserve ratio would increase money supply.