Operating under severe recessionary conditions,the Federal Reserve System decides to reduce its reserve requirements from the current level of 9% to 7.5%.Which of the following is likely to happen following the Fed's move?
A)The rate of unemployment will double.
B)The rate of growth in the economy will fall drastically.
C)It increases the availability of credit with the commercial banks.
D)Businesses will find it difficult to borrow at cheaper rates of interest.

Question

Quizplus · Accepted Answer

Reducing the reserve requirements from 9% to 7.5% means banks are required to hold less money in reserve and can lend out more of their deposits. This action increases the availability of credit, making it easier for businesses and consumers to borrow money, potentially stimulating economic activity.

Operating Under Severe Recessionary Conditions,the Federal Reserve System Decides to Reduce