Lowering the reserve ratio
A) increases the total reserves in the banking system.
B) also reduces the discount rate.
C) turns required reserves into excess reserves.
D) reduces the amount of excess reserves the banks keep.

Question

Quizplus · Accepted Answer

Lowering the reserve ratio turns required reserves into excess reserves, meaning banks are required to hold less money in reserve and have more to lend out to consumers and businesses. This can stimulate economic activity by increasing the amount of money in circulation. A, B, and D are incorrect statements.

Lowering the Reserve Ratio