-The effect on interest rates and the amount of loans made caused by a drop in a bank's required reserves is shown by the movement from:
A) D1 to D2 in Figure A.
B) D1 to D2 in Figure B.
C) S1 to S2 in Figure C.
D) S1 to S2 in Figure D.

Question

-The effect on interest rates and the amount of loans made caused by a drop in a bank's required reserves is shown by the movement from:
A) D1 to D2 in Figure A. 
B) D1 to D2 in Figure B. 
C) S1 to S2 in Figure C. 
D) S1 to S2 in Figure D.

Quizplus · Accepted Answer

When a bank's required reserves decrease, it has more funds available to lend out. This increase in available funds for loans shifts the supply curve of loanable funds from S1 to S2, indicating an increase in the supply of loans. This shift typically leads to lower interest rates as more funds are available for borrowing.

-The Effect on Interest Rates and the Amount of Loans