Asked by Alicion Connor on Jul 22, 2024
Verified
A reduction in the required reserve ratio would cause the interest rates to
A) increase only if the level of investment is low relative to historic levels.
B) decrease.
C) increase.
D) increase only if the level of unemployment is high.
E) remain the same.
Required Reserve Ratio
The fraction of deposits that banks are required to hold in reserve and not lend out, determined by the central bank.
Interest Rates
The cost of borrowing money or the return on investing, typically expressed as a percentage of the principal, and set by central banks or determined by the market.
- Examine the impact of the Federal Reserve's activities on interest rates and monetary supply.
Verified Answer
SS
Sudha SrivastavaJul 29, 2024
Final Answer :
B
Explanation :
A reduction in the required reserve ratio allows banks to lend more money, which increases the supply of money in the economy. This typically leads to lower interest rates as banks have more funds to lend.
Learning Objectives
- Examine the impact of the Federal Reserve's activities on interest rates and monetary supply.
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