If the Fed increases the required reserve ratio, how will this affect excess reserves and the money supply?
A)Both will increase.
B)Excess reserves increase and the money supply decreases.
C)Both will decrease.
D)Excess reserves decrease and the money supply increases.

Question

Quizplus · Accepted Answer

When the Fed increases the required reserve ratio, banks must hold more reserves and cannot lend as much, which decreases excess reserves and contracts the money supply.

If the Fed Increases the Required Reserve Ratio, How Will