When the Fed raises the required reserve ratio, then the:
A) ability of banks to make loans is restricted.
B) ability of banks to make loans is enhanced.
C) ability of banks to make loans is unaffected.
D) interest rate that banks pay to the Fed to borrow money is increased.
E) interest rate that banks pay to other banks to borrow money is increased.

Question

Quizplus · Accepted Answer

When the Fed raises the required reserve ratio, it means banks are now required to hold a higher percentage of their deposits as reserves. This means they have less money available to lend out, which restricts their ability to make loans.

When the Fed Raises the Required Reserve Ratio, Then The