Changes in reserve requirements directly and immediately affect
A)the monetary base.
B)banks' holdings of securities.
C)the Fed's holdings of foreign exchange.
D)the money multiplier.

Question

Quizplus · Accepted Answer

Reserve requirements have a direct and immediate impact on the money multiplier, which determines the amount of money that banks can create through the lending process. An increase in reserve requirements will lower the money multiplier, as banks will be required to hold more reserves and therefore have less money to lend out. Conversely, a decrease in reserve requirements will increase the money multiplier, allowing banks to make more loans and increase the money supply. Changes in reserve requirements do not have a direct impact on the monetary base, banks' holdings of securities, or the Fed's holdings of foreign exchange.

Changes in Reserve Requirements Directly and Immediately Affect