A lowering of the required reserve ratio might not expand the money supply if:
A) tax rates are also lowered at the same time.
B) tax rates are increased at the same time.
C) borrowers are unwilling to borrow the new funds the banks have available for loans.
D) borrowers are willing to borrow the new funds the banks have available for loans..

Question

Quizplus · Accepted Answer

Lowering the required reserve ratio means that banks can lend out more of their deposits, thus potentially increasing the money supply. However, if borrowers are unwilling to borrow the new funds the banks have available for loans, then the money supply will not expand. Lowering the required reserve ratio does not directly impact tax rates, so choices A and B are irrelevant. Choice D is not necessarily true, as it depends on the willingness of borrowers to take on additional debt.

A Lowering of the Required Reserve Ratio Might Not Expand