Reserve ratio and money supply have ________ relationship.

The reserve ratio is the specific percentage of total deposits that commercial banks are required to keep as reserves (either with the central bank or as cash in vaults). There is an inverse or negative relationship between the reserve ratio and the money supply. When the central bank increases the reserve ratio, commercial banks can lend out less money, which contracts the overall money supply in the economy. Conversely, decreasing the reserve ratio increases the lending capacity of banks, leading to an expansion in the money supply.