Question

The Federal Reserve is reluctant to change the required reserve requirements because

Answer 1

Money multiplier is calculated as the reciprocal of required reserve ratio.

Money multiplier indicates by how many times an initial increase or decrease in excess reserves will lead to change in money supply.

So, any small change in required reserve requirements through multiplier effect can lead to significant change in money supply which can cast considerable impact on the entire economy.

Thus, it is the apprehension of Fed that any small change in required reserve requirement can create significant impact on the level of deposits with banking system and money supply in general through multiplier process that make Fed reluctant to change the required reserve requirements.