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Which of the statements below is an accurate description of the economy's reaction to changes in the reserve requirements (interest rates)?(1 point)

Responses

If the reserve requirements tightened, less funds are in reserves and banks do not have as much funds to lend, leading to a decrease in interest rates for customers and an increase in economic growth.
If the reserve requirements tightened, less funds are in reserves and banks do not have as much funds to lend, leading to a decrease in interest rates for customers and an increase in economic growth.

If the reserve requirements tightened, more funds are in reserves and banks do not have as much to lend, leading to an increase in interest rates for customers and a decrease in economic growth.
If the reserve requirements tightened, more funds are in reserves and banks do not have as much to lend, leading to an increase in interest rates for customers and a decrease in economic growth.

If the reserve requirements loosened, more funds are in reserves and banks do not have as much to lend, leading to an increase in interest rates and a decrease in economic growth.
If the reserve requirements loosened, more funds are in reserves and banks do not have as much to lend, leading to an increase in interest rates and a decrease in economic growth.

If the reserve requirements loosened, less funds are in reserves and banks would have more to lend, leading to an increase in interest rates and an increase in economic growth.

1 answer

The accurate description of the economy's reaction to changes in reserve requirements is:

If the reserve requirements tightened, more funds are in reserves and banks do not have as much to lend, leading to an increase in interest rates for customers and a decrease in economic growth.

This statement accurately reflects the dynamics of reserve requirements. When reserve requirements are tightened, banks must hold a larger portion of their deposits as reserves, which reduces the amount of money they can lend out. This reduction in lending often results in higher interest rates for customers and can lead to slower economic growth.