If the quantity of bank reserves held at the Fed increases,________.
A) the rate of inflation increases
B) bank deposits decrease
C) the real interest rate increases
D) the number of loans issued by banks decreases

Question

Quizplus · Accepted Answer

When the quantity of bank reserves held at the Fed increases, banks have more reserves available to lend out, which can lead to an increase in the money supply if banks use these reserves to issue more loans. An increase in the money supply, all else being equal, can lead to higher inflation.

If the Quantity of Bank Reserves Held at the Fed