As market interest rates rise:

Question

Quizplus · Accepted Answer

As market interest rates rise, banks will earn a higher return on their loans and other investments. This increases the opportunity cost of holding reserves, since the interest earned on reserves is likely to be lower than what the bank could earn by making loans or investing in other assets. As a result, banks may be more likely to lend out their reserves and less likely to hold excess reserves. However, this does not necessarily mean that fewer loans will be extended or that the money multiplier will fall, as those factors are influenced by a variety of other factors besides interest rates.

As Market Interest Rates Rise