When the Fed raises the required reserve ratio, the banks' excess reserves will initially ________ and the money supply ________.

Question

Quizplus · Accepted Answer

When the Fed raises the required reserve ratio, banks are required to hold a higher percentage of deposits in reserves, which means they will have less excess reserves to lend out. This decrease in excess reserves will result in a decrease in the money supply, as there will be less money available for loans and investment.

When the Fed Raises the Required Reserve Ratio, the Banks