Question

If the Fed lowers the reserve requirement, what will happen? (Select the best answer.) Group of answer choices Banks will be able to give out more loans. People will have less spending power. Banks will make changes to the fees they charge customers. The money supply will grow more slowly.

Answer 1

Banks will be able to give out more loans

Step-by-step explanation:

The Fed demands banks to maintain a percentage of their deposits as reserves. Reserves are meant to stay within the bank's strongroom to cater for unexpected withdrawals. The banks cannot loan out that money.

Should the Fed lower the reserve requirements, the banks will have more money lend. The proposition of deposits available to issue out as loans will increase.

The Fed influences the level of reserves to direct economic growth. Should the economy be slowing down, the Fed discourages the banks from holding high levels of reserves. Holding low reserves encourages banks to lend to households and businesses, which stimulates economic growth.