The Fed Seldom Uses the Reserve Requirement Ratio to Influence

question 132

Multiple Choice

The Fed seldom uses the reserve requirement ratio to influence the money supply. What is the reason for this?

• A) It is difficult and costly for the Fed to monitor compliance.
• B) Frequent manipulation of reserve requirements would require bankers to constantly adjust their lending policies to changing requirements, which could be destabilizing for financial markets.
• C) The Fed would like to discourage banks from making loans indiscriminately and therefore sets just one standard.
• D) Reserves in excess of a certain amount will not be covered by the Federal Depository Insurance Corporation.

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Definitions:

Cones

Retinal photoreceptor cells critical for seeing colors and performing most effectively in bright lighting conditions.

Color Vision

The ability of the eye to distinguish objects based on the wavelengths of the light they reflect, transmit, or emit.

Visual System

The part of the central nervous system which gives organisms the ability to process visual detail, enabling the formation of images.

Color Processing

The manner in which the brain interprets wavelengths of light as different colors, a critical component of human vision.