An increase in the reserve requirement from 20 percent to 25 percent is most likely to:

Question

Quizplus · Accepted Answer

An increase in the reserve requirement from 20 percent to 25 percent would reduce excess reserves that banks can use to create additional loans and deposits. This reduction in excess reserves would lower the deposit expansion multiplier and ultimately decrease total deposits in the banking system. Therefore, option B is the correct answer.

An Increase in the Reserve Requirement from 20 Percent to 25