An increase in the reserve requirement
A) increases the money supply, which leads to increased interest rates and a decrease in GDP.
B) increases the money supply, which leads to decreased interest rates and a decrease in GDP.
C) decreases the money supply, which leads to increased interest rates and a decrease in GDP.
D) decreases the money supply, which leads to decreased interest rates and a decrease in GDP.

Question

Quizplus · Accepted Answer

An increase in the reserve requirement decreases the amount of money that banks can lend out, which leads to a decrease in the money supply. This decrease in the money supply leads to an increase in interest rates and a decrease in GDP as there is less money available for businesses and consumers to spend and invest.

An Increase in the Reserve Requirement