If the desired reserve ratio increases, then
A)banks are able to make more loans.
B)the Fed has supplied banks with more reserves.
C)bank customers become more willing to make deposits in banks.
D)banks' desired reserves increase and their excess reserves decrease.
E)banks can buy more government securities.

Question

Quizplus · Accepted Answer

When the desired reserve ratio increases, banks need to hold more reserves relative to their deposits, which means their desired reserves increase and their excess reserves decrease, limiting their ability to make additional loans.

If the Desired Reserve Ratio Increases, Then