Which of the Following Statements Best Describes Why a Decrease

question 96

Multiple Choice

Which of the following statements best describes why a decrease in reserve requirements often results in an increase in the money supply?

• A) A decrease in reserve requirements gives banks more money to better determine their interest rates.
• B) A decrease in reserve requirements gives banks more money to pay off their debts.
• C) A decrease in reserve requirements gives banks more money to lend out.
• D) A decrease in reserve requirements gives banks more money to offer in dividend payments to their clients.
• E) A decrease in reserve requirements gives banks more money to reward their employees for meritorious financial ventures.

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Definitions:

Moral Hazard

The situation in which one party is more likely to take risks because another party bears the cost of those risks.

Active Portfolio Managers

Investment professionals who actively make decisions to buy, sell, or hold assets in order to beat the market average or achieve specific investment objectives.

Beat the Market

Achieving investment returns that surpass benchmark or average returns of the financial markets.

Interest Rate

The expense associated with lending funds or the profit gained from investments, usually represented as a percentage.