Decreasing the reserve requirement ratio is
A) a contractionary policy because it lowers the amount of total reserves in the banking system.
B) a contractionary policy because it lowers the amount of excess reserves in the banking system.
C) an expansionary policy because it raises the amount of excess reserves in the banking system.
D) an expansionary policy because it raises the amount of required reserves in the banking system.

Question

Quizplus · Accepted Answer

Decreasing the reserve requirement ratio means banks are required to hold less reserves and therefore have more excess reserves, which is an expansionary policy as it increases the amount of funds available for lending and promotes economic growth.

Decreasing the Reserve Requirement Ratio Is