A decrease in excess reserves causes the:
A) supply of loanable funds to increase, leading to lower interest rates.
B) demand for loanable funds to decrease, leading to lower interest rates.
C) supply of loanable funds to decrease, leading to higher interest rates.
D) demand for loanable funds to increase, leading to higher interest rates.

Question

Quizplus · Accepted Answer

A decrease in excess reserves means banks have less money available to lend out, which reduces the supply of loanable funds. This reduction in supply, with demand remaining constant, leads to higher interest rates.

A Decrease in Excess Reserves Causes The