Question

If the desired reserve ratio were increased, then what would be the result?

a. The money supply would tend to decrease, but the outstanding loans of banks would tend to increase. b. Both the money supply and the outstanding loans of banks would tend to decrease. c. The money supply would tend to increase, but the outstanding loans of banks would tend to decrease. d. Both the money supply and the outstanding loans of banks would tend to increase.

Answer 1

C

Step-by-step explanation:

When the reserve ratio is lowered, banks give them less when a checking deposit is made. So because banks are holding onto more of the money, they're able to lend this added amount out. So it will lead to an increase in the money supply.