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In short, nothing (read more, things do definitely happen). The money supply however changes and by extension the money multiplier changes over time. The way that question is presented however is asking about a direct relationship, which there is none. Absolutely there is an indirect result however.
Increasing the reserve ratio effectively reduces the money supply within the banking world. This results reduced loan availability with reduces investment. Lower investment causes a stagnation in industry. A stagnation in industry causes recession (through countless ways). People are laid off and companies are hesitant to explore markets. Net result? Less spending. With less spending people/businesses in this situation worry more about their long term stability and care less about immediate spending needs. Both industry and individual "tighten" their belt so to speak. No more investment, and therefore the banks continue the cycle. The money multiplier changes to reflect the propensity to save across all fronts.
Basically, an increased ratio requirement results in a lower multiplier factor. Not directly, but that's what happens.
On second thought, I should probably give the simple response that you're going to face in a test. Very simple. Fractional banking infrastructure means that increasing the required reserve reduces loan capacity. Reduced loan capacity results in a propagation of less loan potential. This effect permeates through all of society. The result is that money cannot be "created" by banks/enterprises/individuals as much as before by relying on interest. Hence, the multiplier of money goes down because the velocity of money goes down.
What else can I help you with?
What happens to money supply when the fed raises the reserve requirement?
tibor and owen
When the Feds want to increase the money supply it?
The reserve requirement is 0.5. The Fed wants to increase the money supply by $1000.
What happens to the WACC when the federal reserve tightens credit?
WACC will increase.
How can the Federal Reserve use the reserve requirement the discount rate and open market operations during a time of recession?
Yes b/c this would increase the banker's availability to funds and thus increase the money supply, stimulating the economy.
What change is definitely predicted to lower Real GDP in the short run?
A decrease in aggregate demand, an increase in the reserve requirement, an increase in the discount rate, increase in interest rates, a decrease in government spending.
What happens to money supply when the fed raises the reserve requirement?
tibor and owen
When the Feds want to increase the money supply it?
The reserve requirement is 0.5. The Fed wants to increase the money supply by $1000.
What happens to the WACC when the federal reserve tightens credit?
WACC will increase.
What would most likely happen if the federal reserve decided to increase the reserve requirements in banks?
If the Federal Reserve decided to increase the reserve requirement in banks, it is likely that banks would be targeted more often for robbery. This would be because there would be more money in every federally-insured bank.
Under a fractional reserve banking system the amount of money loaned out can only increase if what happens?
The required reserve ratio is lowered.
How can the Federal Reserve use the reserve requirement the discount rate and open market operations during a time of recession?
Yes b/c this would increase the banker's availability to funds and thus increase the money supply, stimulating the economy.
What change is definitely predicted to lower Real GDP in the short run?
A decrease in aggregate demand, an increase in the reserve requirement, an increase in the discount rate, increase in interest rates, a decrease in government spending.
Ask us anythingUnder a fractional reserve banking system the amount of money loaned out can only increase if what happens?
Under a fractional reserve banking system, the amount of money loaned out can only increase if there is an increase in the bank's reserves or a rise in customer deposits. This can occur when the central bank injects more liquidity into the banking system, or when banks attract more deposits from customers. Additionally, if banks are able to maintain a lower reserve requirement set by the central bank, they can lend out a greater portion of their deposits, thus increasing the overall money supply.
What are the three ways the fed can increase money supply?
Open market operations ( purchasing bonds), Discount rates ( lowering the interest rates) and Reserve requirement.
How you can increase general reserve when your profit has also decreased?
how can we increase the general reserve
What will increased consumer spending?
Consumer spending is called consumption, which is a component of Aggregate Demand in our economy. In monetary policy, the Federal Reserve can buy treasuries, lower the reserve requirement, and lower the discount rate which will increase consumption. In fiscal policy, the government can cut taxes to increase consumer spending.
Decreasing the reserve requirement will?
will discourage aggregate demand.
