Based on the model of the money market, if the Federal Reserve increases the reserve requirement, the equilibrium interest rate should
A) stay the same.
B) increase.
C) decrease.
D) increase to the same extent that the demand for money increases.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the reserve requirement, banks have less money available to lend, which decreases the supply of loanable funds. This decrease in supply, with demand remaining constant, leads to an increase in the equilibrium interest rate.

Based on the Model of the Money Market, If the Federal