Question
If the Fed were to impose a slight increase in the required reserves ratio, there would be _____.
a decrease in the money supply
an increase, then a decrease, in the money supply
an increase in the money supply
no change in the money supply
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GPT-4o mini
If the Fed were to impose a slight increase in the required reserves ratio, there would be **a decrease in the money supply**.
When the required reserves ratio increases, banks are required to hold a larger fraction of their deposits in reserve and have less available to lend out. This typically leads to a reduction in the money supply as there are fewer loans being created by the banking system.
When the required reserves ratio increases, banks are required to hold a larger fraction of their deposits in reserve and have less available to lend out. This typically leads to a reduction in the money supply as there are fewer loans being created by the banking system.
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