A change in the reserve requirement is used infrequently by the Fed because it
A) is disruptive to the banking system.
B) does not influence the money supply.
C) does not affect bank reserves.
D) does not affect the money multiplier.

Question

Quizplus · Accepted Answer

A change in the reserve requirement is disruptive to the banking system because it requires banks to adjust their balance sheets, which can be time-consuming and costly. Additionally, it can lead to unintended consequences, such as a shortage of reserves in the banking system or a decrease in the availability of credit. Therefore, the Fed typically uses other tools, such as open market operations, to influence the money supply before resorting to changing the reserve requirement.

A Change in the Reserve Requirement Is Used Infrequently by the Fed