Increasing the reserve requirement:
A) allows banks to make more loans and reduces the money supply.
B) allows banks to make more loans and increases the money supply.
C) reduces the amount of loans a bank can make and reduces the money supply.
D) reduces the amount of loans a bank can make and increases the money supply.

Question

Quizplus · Accepted Answer

Increasing the reserve requirement means banks must hold a greater portion of their deposits in reserve and cannot use them for lending. This reduces the amount of loans banks can make, which in turn reduces the money supply, as there is less money being created through the lending process.

Increasing the Reserve Requirement