Other thing equal, an increase in the reserve requirement will
A)induce the depositors to withdraw money from the banks
B)increase the amount of deposits available for lending
C)reduce the amount of deposits available for lending
D)not change the amount of funds available for lending
E)induce the banks to invest in Treasury securities

Question

Quizplus · Accepted Answer

An increase in the reserve requirement means that banks are required to hold a higher percentage of their deposits as reserves, which reduces the amount of deposits available for lending. This means that banks have less money to lend out to borrowers, which can lead to a decrease in economic activity. Therefore, choice C is the correct answer.

Other Thing Equal, an Increase in the Reserve Requirement Will