If banks are currently holding zero excess reserves and the Fed raises the required reserve ratio,which of the following will happen?
A) Banks will have a reserve deficiency.
B) Banks will have positive excess reserves.
C) Banks will begin to extend more loans.
D) Banks will begin to extend more credit.
E) b and d

Question

Quizplus · Accepted Answer

If the Fed raises the required reserve ratio and banks are already holding zero excess reserves, they will have to increase their reserves to meet the new requirement. This means they will have a reserve deficiency and will need to either reduce their loans or find new sources of reserves to meet the requirement. Options B, C, and D are all unlikely to happen because banks will be focused on meeting the new reserve requirement rather than extending more loans or credit.

If Banks Are Currently Holding Zero Excess Reserves and the Fed