Increasing 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

Increasing the reserve requirement ratio is a contractionary policy because it reduces the amount of excess reserves that banks have available to lend, thereby decreasing the money supply.

Increasing the Reserve Requirement Ratio Is