Question

Which situation best describes how a change in the reserve requirements affects the economy? (1 point)

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.
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.
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.
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.

Answer 1

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.

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Answer 2

Feds System Tools and Monetary Policy Quick Check (answers only)

1. 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.

2. Repos result in a temporary increase in a bank's reserves and maintain liquidity in the banking system. Banks can sell reverse repos back to the Federal Reserve at a higher price in a short period of time.

3. Reducing the reserve requirements to increase the amount available for banks to lend.

4. Banks have more funds to issue loans to consumers and businesses, which increases consumer and business spending, employment, and economic growth.

5. monetary policy

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