Increases in the fraction of deposits that banks hold as reserves increase interest rates and reduce borrowing in the loanable funds market.

Name: Increases in the fraction of deposits that banks hold as reserves increase interest rates and reduce borrowing in the loanable funds market.
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Question

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When banks hold a larger fraction of deposits as reserves, they have less money available to lend out, which reduces the supply of loanable funds. This causes interest rates to increase and borrowing to decrease.

Increases in the Fraction of Deposits That Banks Hold as Reserves