Which of the following is likely to happen if the reserves held at the Fed by the private banks decrease?
A) Banks will make more loans.
B) Labor demand will increase.
C) The M2 measure of money will decrease.
D) The nominal interest rate will decrease.

Question

Quizplus · Accepted Answer

The reserves held by the private banks at the Fed act as a foundation for the creation of money. If the reserves decrease, the banks will have less money to lend out, which will cause a decrease in the M2 measure of money. The other options are not directly related to the reserves held at the Fed by private banks.

Which of the Following Is Likely to Happen If the Reserves