Question
To increase the money supply using the reserve requirements, what would the Fed typically do? A) increase the reserve requirement for banks B) reduce the reserve requirement for banks C) make each bank set its own reserve levels D) let each bank get more currency from the Treasury
Answer
B) reduce the reserve requirement for banks.
- Q:What are reserve requirements? A:Reserve requirements are the amount of funds that a depository institution must hold in reserve against deposits in a Federal Reserve Bank.
- Q:Do reserve requirements affect the money supply? A:Yes, they do.
- Q:So, what would the Fed typically do to increase the money supply using the reserve requirements? A: B) reduce the reserve requirement for banks.