Question

What would be the effect of an increase in the reserve requirement?

A. Banks would make fewer loans because they would have to keep more money in reserves

B. Banks would make more money in interest off of loans

C. Banks would borrow more money to make loans

D. Banks would offer lower interest rates to borrowers

Answer 1

is this right

Answer 2

A. Banks would make fewer loans because they would have to keep more money in reserves

Answer 3

Yes, that is correct. When the reserve requirement is increased, banks are required to keep a higher percentage of their deposits as reserves and have less money available to lend out. This would lead to banks making fewer loans because they would need to keep more money in reserves.