ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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lowers the money supply
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increases the money supply
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Either A or B
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None of the above
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Detailed explanation-1: -When the Federal Reserve decreases the reserve ratio, it lowers the amount of cash that banks are required to hold in reserves, allowing them to make more loans to consumers and businesses. This increases the nation’s money supply and expands the economy.
Detailed explanation-2: -When the Fed raises the reserve requirement on deposits, the money supply decreases. When the Fed lowers its target federal funds rate and discount rate, it signals an expanded U.S. money supply and lower overall interest rates.
Detailed explanation-3: -Raising the reserve requirement reduces the amount of money that banks have available to lend. Since the supply of money is lower, banks can charge more to lend it. That sends interest rates up.