When reserve requirements are increased, the
A) excess reserves of commercial banks will decrease.
B) excess reserves of commercial banks will increase.
C) U.S. Treasury will have to borrow additional funds.
D) money supply will rise.

Question

Quizplus · Accepted Answer

When reserve requirements are increased, the excess reserves of commercial banks will decrease. This is because banks are required to hold a higher percentage of their total deposits as reserves, leaving them with less available funds to lend out, resulting in a decrease in the money supply.

When Reserve Requirements Are Increased, the