Learning Path
Question & Answer
Choose the Best Answer
Increased reserve requirements will lead to reduced liquidity, making banks less willing to lend to each other, thus decreasing the overall money supply.
Increased reserve requirements will enhance liquidity, allowing banks to lend more freely to each other, thereby increasing the overall money supply.
Reserve requirements have no impact on the interbank lending market or the money supply.
Increased reserve requirements will result in banks hoarding more cash, which will stabilize the money supply.
Understanding the Answer
Let's break down why this is correct
When reserve requirements rise, banks must hold more deposits in reserve, so less money is left to lend. Other options are incorrect because Some think higher reserve requirements give banks more free cash, but the opposite is true; The belief that reserve rules are irrelevant ignores how they set the minimum amount banks must keep.
Key Concepts
Commercial Bank Reserves
hard level question
understand
Deep Dive: Commercial Bank Reserves
Master the fundamentals
Definition
Commercial Bank Reserves involves understanding how banks manage their reserves, including required reserves and excess reserves. This topic is crucial in determining a bank's capacity to lend and its adherence to reserve requirements set by regulatory authorities.
Topic Definition
Commercial Bank Reserves involves understanding how banks manage their reserves, including required reserves and excess reserves. This topic is crucial in determining a bank's capacity to lend and its adherence to reserve requirements set by regulatory authorities.
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.