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

Question

a. 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.

b. 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.

c. 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.

d. 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.

Answer 1

The statement that accurately describes the economy's reaction to changes in reserve requirements is:

d. 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.

Here’s a brief explanation: When reserve requirements are tightened, banks must hold a larger portion of their deposits in reserve, reducing their ability to lend money. With less lending, there is less money circulating in the economy, which can lead to higher interest rates as banks have fewer funds available to meet borrowers' demands, ultimately slowing down economic growth.