A decrease in the reserve requirement
A) increases the money supply, which leads to increased interest rates and a fall in investment spending.
B) increases the money supply, which leads to decreased interest rates and a rise in investment spending.
C) decreases the money supply, which leads to increased interest rates and a fall in investment spending.
D) decreases the money supply, which leads to decreased interest rates and a rise in investment spending.

Question

Quizplus · Accepted Answer

A decrease in the reserve requirement means that banks are required to hold less money in reserve and can lend out more money, leading to an increase in the money supply. This increase in the money supply will lead to decreased interest rates, making it cheaper for businesses to borrow money to invest in their operations, ultimately leading to a rise in investment spending.

A Decrease in the Reserve Requirement