What effect would an increase in the discount rate have on the money supply? O It would increase the money multiplier O It would cause the money supply to contract O It would not affect the money supply It would cause the money supply to expand

What effect would an increase in the discount rate have on the money supply? O It would increase the money multiplier O It would cause the money supply to contract O It would not affect the money supply It would cause the money supply to expand

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter15: Monetary Policy

Section: Chapter Questions

Problem 4QP

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Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

Question

What effect would an increase in the discount rate have on the money supply?
OIt would increase the money multiplier
O It would cause the money supply to contract
It would not affect the money supply
It would cause the money supply to expand

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