If the Federal Reserve eliminated all reserve requirements the most likely result would be
A) a large number of depository institution failures because they would not have enough liquidity.
B) the Federal reserve would be unable to control the money supply.
C) banks would no longer be able to clear checks at the Federal Reserve because there would be no required reserves.
D) the size of the money multiplier might fluctuate considerably making the Federal Reserve's job of controlling the money supply more difficult.

Question

Quizplus · Accepted Answer

Eliminating reserve requirements would likely lead to greater fluctuations in the money multiplier, as banks could choose how much to hold in reserve without regulatory constraints. This variability could make it more challenging for the Federal Reserve to control the money supply, as the relationship between central bank actions and the money supply would become less predictable.

If the Federal Reserve Eliminated All Reserve Requirements the Most