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Changes in reserve ratio have an inverse relationship with the money supply.

An decrease in reserve ratio allows banks to keep more excess reserves, and thus make more loans. More loans means an increase in the money supply.

An increase has the opposite effect.

As a addition to this answer, it can be stated that the so-called epicenter of monetary policy in the US is the reserves market controlled in part by the US Federal Reserve System. It is there that the overnight interest rate that the Fed targets is determined and its open market operations have their impact.

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9y ago

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