If banks must hold more money in reserve,

Question

Quizplus · Accepted Answer

If banks must hold more money in reserve, there is less money available to lend. This is because the money that banks hold in reserve is money that they cannot lend out to customers. Therefore, if they have to hold more in reserve, they will have less available to lend. Option A is incorrect because if banks have to hold more money in reserve, the money supply will actually contract, not expand. Option B is incorrect because if banks have less money available to lend, then there is not more money available to lend.

If Banks Must Hold More Money in Reserve