Question

If there are no excess reserves in the banking system and the Fed lowers the required reserve ratio, it follows that banks will now have __________, which they can use to extend loans and create new

Answer 1

Excess reserves

Step-by-step explanation:

Money supply in the economy is regulated by the central bank of Federal Reserve through various methods.

One of them is the use of reserve ratio.

Reserve ratio is the percentage of total deposit in a bank that commercial banks are required to keep aside and not use.

If there is no excess reserves and the Fed lowers required reserve ratio, it means banks will now have more money they can use to service customers.

The excess excess of the reserve can now the used to give out loans