Suppose that the reserve requirement for checking deposits is 16 percent and that banks do not hold any excess reserves.

If the Fed sells $2 million of government bonds, the economy's reserves bymillion, and the money supply will bymillion.

Now suppose the Fed lowers the reserve requirement to 8 percent, but banks choose to hold another 8 percent of deposits as excess reserves.

True or False: The money multiplier will increase.

True

False

True or False: As a result, the overall change in the money supply will increase.

True

False