When the required reserve ratio is increased, the excess reserves of member banks are
A)reduced, but the multiple by which the commercial banking system can lend is unaffected.
B)reduced and the multiple by which the commercial banking system can lend is increased.
C)increased and the multiple by which the commercial banking system can lend is increased.
D)reduced and the multiple by which the commercial banking system can lend is reduced.

Question

Quizplus · Accepted Answer

Increasing the required reserve ratio reduces excess reserves and decreases the lending capacity of the banking system.

When the Required Reserve Ratio Is Increased, the Excess Reserves