The effect of an increase of required reserves by the Fed is:
A)a decrease in loanable funds of depository institutions
B)a decrease in interest rates
C)usually an increase in vault cashan increase of excess reserves
D)to stimulate activity in the home construction field

Question

Quizplus · Accepted Answer

When the Fed increases required reserves, it effectively reduces the amount of money that depository institutions can lend out. This is because banks and other financial institutions are required to hold a certain amount of cash on hand, which reduces the amount of money they have available to lend out to businesses and individuals. As a result, there is a decrease in loanable funds, which can lead to higher interest rates and slower economic growth.

The Effect of an Increase of Required Reserves by the Fed