If commercial banks are maintaining a 5 percent reserve/deposit ratio and the Fed lowers the required reserve ratio to 3 percent, then banks may ________ their loans and deposits, and the money supply may ________.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease

Question

Quizplus · Accepted Answer

When the Fed lowers the required reserve ratio, banks have more funds to lend. This usually increases both bank lending and the money supply.

If Commercial Banks Are Maintaining a 5 Percent Reserve/deposit Ratio