When the reserve requirement is increased,
A) required reserves are changed into excess reserves.
B) the excess reserves of banks are increased.
C) a single commercial bank can no longer lend dollar-for-dollar with its excess reserves.
D) the excess reserves of banks are reduced.

Question

Quizplus · Accepted Answer

When the reserve requirement is increased, banks are required to hold more reserves, which means that their excess reserves are reduced. This reduces the amount of money that banks can lend, which can have a contractionary effect on the economy.

When the Reserve Requirement Is Increased