When the Fed decreases 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 reduced.
E) interest rate that banks pay other banks to borrow money is decreased.

Question

Quizplus · Accepted Answer

When the Fed decreases the required reserve ratio, it means that banks are required to hold less money in reserve and can lend out more money. This enhances their ability to make loans.

When the Fed Decreases the Required Reserve Ratio, Then The