Question

Which accurately describes how raising the required reserve ratio reduces the money supply?

Answer 1

I had to look for the options and here is my answer:
The statement that best describes as to how increasing the required reserve ratio decreases the supply of money is this: Based on the actual options given, when the required reserve ratio is raised, banks must loan out a smaller portion of their reserves, resulting in fewer loans.

Answer 2

The correct answer to this open question is the following.

The statement that accurately describes how raising the required reserve ratio reduces the money supply is the following: when the required reserve ratio is raised, banks must loan out a smaller portion of their reserves, resulting in fewer loans.

To better understand this we have to remember that the Federal Reserve acts as the Central bank of the United States. It has many functions in order to implement the proper monetary policy in order to control inflation and maintain a healthy US financial system. So the Fed requires all commercial banks, credit unions, and savings banks, to lend 9 of 10 dollars deposited in the bank, and to have the number of funds ready on a daily basis, resulting from the deposits of the day.