Given the supply of and demand for loans, an increase in excess reserves tends to:
A) raise the interest rate and quantity of loans made.
B) lower the interest rate and quantity of loans made.
C) raise the interest rate and lower the quantity of loans made.
D) lower the interest rate and raise the quantity of loans made.

Question

Quizplus · Accepted Answer

An increase in excess reserves gives banks more capacity to lend, which typically leads to a decrease in interest rates to attract borrowers and an increase in the quantity of loans made.

Given the Supply of and Demand for Loans, an Increase