When the Fed decreases the reserve requirement, banks lend _____ of their deposits, which leads to a(n) _____ in the money supply.

Question

Quizplus · Accepted Answer

When the Federal Reserve decreases the reserve requirement, banks are required to hold less in reserves and therefore can lend more of their deposits. This leads to an increase in the money supply because more money is being lent out and circulating in the economy. Therefore, choice D, "more; increase" is the best answer.

When the Fed Decreases the Reserve Requirement, Banks Lend _____