-The effect on the market for loans of an increase in the reserve requirement 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 the market for loans of an increase in the reserve requirement 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

An increase in the reserve requirement reduces the amount of funds banks have available to loan out, which is represented by a leftward shift in the supply of loans from S1 to S2 in the loan market. This is correctly depicted in option D.

-The Effect on the Market for Loans of an Increase