Increasing excess reserves:
A) lowers the interest rate, which in turn increases loan making, the money supply, and the level of economic activity.
B) lowers the interest rate, which in turn decreases loan making, the money supply, and the level of economic activity.
C) increases the interest rate, which in turn increases loan making, the money supply, and the level of economic activity.
D) increases the interest rate, which in turn decreases loan making, the money supply, and the level of economic activity.

Question

Quizplus · Accepted Answer

When banks have excess reserves, they are more likely to lend, which can lower interest rates due to increased supply of loanable funds. Lower interest rates make borrowing more attractive, leading to more loans, an increase in the money supply, and potentially more economic activity.

Increasing Excess Reserves