The Fed changes the reserve requirement sparingly because:
A) very small changes cause very large overall changes to money supply due to the money multiplier.
B) it would cause uncertainty for banks and slow their rate of lending.
C) sudden changes of such a huge magnitude would have far-reaching, and sometimes undesirable, effects.
D) All of these are true.

Question

Quizplus · Accepted Answer

All of these are true. The reserve requirement has a powerful impact on the money supply due to the money multiplier effect. Sudden changes can cause uncertainty and slow the rate of lending in the banking system. Additionally, large changes can have far-reaching and sometimes undesirable effects on the economy. Therefore, the Fed changes the reserve requirement sparingly and carefully to avoid these consequences.

The Fed Changes the Reserve Requirement Sparingly Because