An increase in interest rates
A)decreases the M2 money multiplier.
B)decreases the ratio of excess reserves to transaction accounts held by banks
C)increases the money supply for a given amount of monetary base.
D)increases the ratio of excess reserves to transaction accounts held by banks

Question

Quizplus · Accepted Answer

Higher interest rates incentivize banks to lend more rather than hold excess reserves, thus decreasing the ratio of excess reserves to transaction accounts.

An Increase in Interest Rates