What effect has the Fed's credit policy since 2008 had on the money multiplier?

The correct choice indicates that the Fed's credit policy since 2008 has led to a reduction in the money multiplier. This outcome can be understood by examining the broader context of the Fed's actions during and after the financial crisis.

Since 2008, the Federal Reserve implemented several measures, including lowering interest rates and engaging in quantitative easing, which involved purchasing large quantities of financial assets. While such policies aimed to ensure liquidity in the financial system and stimulate economic activity, they also affected the behavior of banks regarding reserves and lending practices.

The money multiplier is influenced by the reserve ratio, which is the fraction of deposits that banks are required to hold as reserves. In general, a lower reserve ratio results in a higher money multiplier, as banks can lend out a greater portion of their deposits. However, during the post-2008 period, despite the Fed's actions aimed at encouraging lending, the actual lending activity remained subdued. Banks became more conservative due to the economic uncertainty, resulting in them holding higher reserves relative to their deposits.

As a result, the effectiveness of the money multiplier diminished because even though banks had access to more reserves, they were not translating these reserves into new loans at the expected rate. This situation has contributed to the reduction in the money