Asked by court Adams on May 11, 2024
Verified
If the Fed decreases the required reserve ratio at a time when banks are holding no excess reserves,the Fed is:
A) forcing banks to increase the money supply.
B) forcing banks to decrease the money supply.
C) making it possible for banks to increase the money supply but not forcing them to do so.
D) making it possible for banks to decrease the money supply but not forcing them to do so.
E) conducting open market operations but not changing the money supply.
Required Reserve Ratio
The fraction of deposits that a bank is mandated by regulations to hold in reserve and not loan out.
Excess Reserves
The amount of reserves that a bank holds beyond the required minimum, which can be loaned out to generate earnings.
Open Market Operations
A monetary policy tool used by central banks to control the money supply by buying or selling government securities in the open market.
- Identify and explain the effects of adjusting the reserve requirement ratio on the banking system's ability to create money.
Verified Answer
Learning Objectives
- Identify and explain the effects of adjusting the reserve requirement ratio on the banking system's ability to create money.
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