Asked by Ariyon Powell on Jun 03, 2024
Verified
Operating under severe recessionary conditions,the Federal Reserve System decides to reduce its reserve requirements from the current level of 9% to 7.5%.Which of the following is likely to happen following the Fed's move?
A) The rate of unemployment will double.
B) The rate of growth in the economy will fall drastically.
C) It increases the availability of credit with the commercial banks.
D) Businesses will find it difficult to borrow at cheaper rates of interest.
Reserve Requirements
Regulations set by central banks determining the minimum amount of reserves that banks must hold against deposits, influencing liquidity and lending capacities.
Recessionary Conditions
Economic circumstances characterized by negative growth, reduced consumer spending, and increased unemployment.
- Gain insight into the influence of governmental monetary strategies on economic development, fluctuations in interest rates, and the provision of credit.
- Identify the methods and tools used by the Federal Reserve to influence economic activity.
Verified Answer
MA
michael ayalaJun 09, 2024
Final Answer :
C
Explanation :
Reducing the reserve requirements from 9% to 7.5% means banks are required to hold less money in reserve and can lend out more of their deposits. This action increases the availability of credit, making it easier for businesses and consumers to borrow money, potentially stimulating economic activity.
Learning Objectives
- Gain insight into the influence of governmental monetary strategies on economic development, fluctuations in interest rates, and the provision of credit.
- Identify the methods and tools used by the Federal Reserve to influence economic activity.
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