nitoha

Now, this is what my understanding is.. take it with a grain of salt...

If you (the Fed) give someone (the bank) $10, he coverts it to $25 (the money gets multiplied)
If you take away $10 from him, you have effectively taken away $25 that would have been created due to the money multiplying effect... So I would expect it to work in either case...

Or one could reason it out by saying that if the bank reserve decreases by $100K, the loan given out will decrease not only by $100K but even more because the bank has to decrease the loans to maintain the desired reserve ratio.. and hence the effect will continue...