If the required reserve ratio on checkable deposits increases while all other variables, such as the monetary base, stay the same, we have seen that there is less multiple deposit expansion, and hence the money supply falls. If, on the other hand, the required reserve ratio falls, multiple deposit expansion would be higher and the money supply would rise.We now have the following result: The money supply is negatively related to the required reserve ratio r. In the past, the Fed sometimes used reserve requirements to affect the size of the money supply. In recent years, however, reserve requirements have become a less important factor in the determination of the money multiplier and the money supply, as we shall see in the next chapter.
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