Ceteris paribus,if the Fed raises the reserve requirement,then:
A) The money multiplier increases.
B) The lending capacity of the banking system decreases.
C) Excess reserves increase.
D) Required reserves decrease.

Question

Quizplus · Accepted Answer

When the Fed raises the reserve requirement, banks are required to hold a higher percentage of deposits as reserves, which reduces their lending capacity. This means that they have less money available to loan out, which decreases the money multiplier. Excess reserves may increase as banks hold onto more funds to meet the higher reserve requirements, but required reserves do not decrease.

Ceteris Paribus,if the Fed Raises the Reserve Requirement,then