How does the value of reserve effect the value of
credit created by the commercial banks. What
is its relationship with value of multiplier ? Explain?
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When a reserve requirement is 10%, this also means that a bank can lend 90% of its deposits.
If banks are lending more than their reserve requirement allows their multiplier will be higher creating more money supply.
If banks are lending less their multiplier will be lower and the money supply will also be lower.
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