Which of the following is an outcome of an increase in the reserve requirement ratio?
A)DIs may hold fewer reserves against their transaction accounts.
B)DIs are able to lend out a greater percentage of their deposits.
C)Increased credit availability in the economy.
D)DIs are only able to lend a smaller percentage of their deposits than before.
E)A multiplier effect on the supply of DI deposits and thus the money supply.

Question

Quizplus · Accepted Answer

An increase in the reserve requirement ratio means that DIs are required to hold a larger percentage of their deposits as reserves. As a result, they are only able to lend out a smaller percentage of their deposits than before, reducing credit availability in the economy. This decrease in lending power may also decrease the multiplier effect on the supply of DI deposits and thus the money supply. Choices A, B, and C reflect outcomes of a decrease in the reserve requirement ratio.

Which of the Following Is an Outcome of an Increase