Which of the following statements about reserve requirements is true?
A)Reserve requirements apply to the M1 and M2 money supply.
B)Reserve requirements are the most important factor in bank lending.
C) Reserve requirements do not change very often.
D) If reserve requirements are low, banks must keep back more money and therefore have less to lend.

Question

Quizplus · Accepted Answer

Reserve requirements are set by central banks and are typically not changed frequently. The other statements are incorrect - reserve requirements only apply to certain types of deposits (not the entire M1 and M2 money supply), they are not the most important factor in bank lending (bank profits, creditworthiness of borrowers, and demand for loans are also important), and if reserve requirements are high, banks must keep back more money and therefore have less to lend (not the opposite).

Which of the Following Statements About Reserve Requirements Is True