Suppose First National Bank has zero excess reserves.If the required reserve ratio increases,which of the following will happen immediately?
A) Bank assets will decrease.
B) The bank will not have enough required reserves.
C) The money multiplier will increase.
D) Total reserves will increase.

Question

Quizplus · Accepted Answer

When the required reserve ratio increases, banks must hold a larger fraction of their deposits as reserves. If First National Bank has zero excess reserves, an increase in the required reserve ratio means it will not have enough reserves to meet the new requirement immediately, leading to a shortfall in required reserves.

Suppose First National Bank Has Zero Excess Reserves