A decrease in reserve requirements will likely result in banks:
A)holding fewer reserves
B)making more loans
C)increasing the money supply
D)all of the above

Question

Quizplus · Accepted Answer

A decrease in reserve requirements means that banks are required to hold fewer reserves in proportion to their deposits. This allows them to lend out a larger percentage of their deposits, thus making more loans. As banks make more loans, they increase the money supply by creating new deposits. Therefore, all of the above choices (holding fewer reserves, making more loans, increasing the money supply) are correct.

A Decrease in Reserve Requirements Will Likely Result in Banks