The Fed rarely changes the reserve requirement because:
A) very small changes to the reserve requirement cause very large changes to the overall money supply.
B) the money supply is usually well-suited to the needs of the economy.
C) changing the reserve requirement does not typically have a large enough effect on the overall money supply.
D) None of these are true.

Question

Quizplus · Accepted Answer

The reserve requirement is a powerful tool that affects the money supply. A small change in the reserve requirement can lead to a significant change in the money supply because it alters the base amount of money that banks can use to make loans, thereby amplifying the effects through the banking system.

The Fed Rarely Changes the Reserve Requirement Because