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 is calculates as follows -

Money multiplier = 1/Desired reserve ratio

So, it can be seen that money multiplier is reciprocal of desired reserve ratio.

This creates an inverse relationship between desired reserve ratio and money multiplier.

An increase in desired reserve ratio leads to a decrease in money multiplier and a decrease in desired reserve ratio leads to an increase in money multiplier.