By changing the reserve requirement the Fed can change the level of bank reserves and the lending capacity of the banking system.

Question

Quizplus · Accepted Answer

When the Fed changes the reserve requirement, it alters the amount of funds that banks must hold in reserve, which impacts their available funds for lending. This can stimulate or restrict lending capacity, which affects the overall money supply and can influence inflation and economic growth.

By Changing the Reserve Requirement the Fed Can Change the Level