A decrease in reserve-absorbing factors results in an increase in total legal reserves of the banking system.

Question

Quizplus · Accepted Answer

A decrease in reserve-absorbing factors, such as a reduction in Treasury deposits at the Federal Reserve or a decrease in currency in circulation, increases the reserves available to the banking system. This, in turn, increases the total legal reserves banks hold, as they have more funds available to meet reserve requirements and support additional lending.

A Decrease in Reserve-Absorbing Factors Results in an Increase in Total