By raising the required reserve ratio,the Fed can immediately reduce the lending capacity of the banking system.
An increase in the required reserve ratio forces banks to reduce lending and potentially call in loans,leading to a lower overall lending capacity of the banking system.

Question

Quizplus · Accepted Answer

Increasing the required reserve ratio means that banks have to hold a larger percentage of their deposits as reserves, which reduces the amount of money they have available to lend out. This can lead to a contraction of credit and a decrease in the overall lending capacity of the banking system.

By Raising the Required Reserve Ratio,the Fed Can Immediately Reduce