If the reserve requirement is increased to 25 per cent, then the First Bank of Oz:
A)can create money by making a new loan
B)can hold excess reserves
C)cannot make a new loan
D)both B and C

Question

Quizplus · Accepted Answer

If the reserve requirement is increased to 25 per cent, the First Bank of Oz cannot make a new loan because it would not have enough required reserves to do so. Hotels and other financial institutions are also affected by this. The bank would either be required to hold excess reserves or reduce its lending operations to meet the new requirement.

If the Reserve Requirement Is Increased to 25 Per Cent