Question

what is the relationship between the required reserve ratio and the money supply? What is the relationship between the simple deposit multiplier and the money supply?

Answer 1

The reserved ratio is a compulsory amount of money that the financial institution or banks must keep in liquid to enable the operation of an organization. There is a inverse relationship between the required reserve ratio and the money supply.

Simple deposit multiplier is the amount increases or produced in as a result from banks deposits in relation to the amount the money reserved as required by the bank. The deposit multiplier is the inverse of the reserve requirement ratio.