An increase in the reserve requirement can
A)Decrease interest rates
B)Increase liquidity
C)Decrease the money supply
D)Increase the money supply
E)Decrease the profits of banks

Question

Quizplus · Accepted Answer

An increase in the reserve requirement means that banks are required to hold a higher percentage of their deposits in reserve, meaning they have less money to lend out. This decrease in lending ability leads to a decrease in the money supply.

An Increase in the Reserve Requirement Can