If commercial banks are maintaining a 4 percent reserve/deposit ratio and the Fed raises the required reserve ratio to 6 percent, then banks will ______ their loans and deposits, and the money supply will _____.

Question

Quizplus · Accepted Answer

If the required reserve ratio is raised to 6 percent, banks will be required to hold more reserves, which will decrease the amount of money available for lending. This will lead to a decrease in both loans and deposits, which will result in a decrease in the money supply.

If Commercial Banks Are Maintaining a 4 Percent Reserve/deposit Ratio