An increase in the required reserve ratio leaves banks with a need and desire to:
A) become more liquid.
B) make more loans.
C) purchase real estate.
D) lend in the federal funds market.

Question

Quizplus · Accepted Answer

An increase in the required reserve ratio means banks must hold a higher percentage of their deposits as reserves with the central bank. This results in less money available for lending and can decrease their liquidity. To compensate for this, banks may need and desire to become more liquid by decreasing their lending and increasing their holdings of liquid assets such as cash and government securities.

An Increase in the Required Reserve Ratio Leaves Banks with a Need