To Decrease the Money Supply Using the Reserve Requirements, What

question 146

Multiple Choice

To decrease the money supply using the reserve requirements, what would the Fed typically do?

• A) raise the reserve requirement for banks
• B) reduce the reserve requirement for banks
• C) make each bank voluntarily set its own reserve levels
• D) let each bank get less currency from the Treasury

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Definitions:

Deposit Expansion Multiplier

A ratio that determines the maximum amount by which the money supply can increase through the banking system's process of lending out deposits.

Required Reserve Ratio

A regulation that sets the minimum reserves each bank must hold to customer deposits and notes, effectively the same concept as the reserve-requirement ratio but stated differently.

Commercial Banks

Financial institutions that provide services such as accepting deposits, providing business loans, and offering basic investment products.

Government Securities

Financial instruments issued by the government to finance its expenditures, including bonds, notes, and bills, that pay interest to investors.