If a central bank raises the required reserve ratio, the immediate intended effect is to
Correct answer: A. reduce the lending capacity of commercial banks
- A. reduce the lending capacity of commercial banks
- B. increase the money multiplier through larger loans
- C. lower the amount of reserves held by commercial banks
- D. increase aggregate demand through cheaper credit
Explanation
A higher reserve ratio requires banks to retain a larger share of deposits and leaves less available for lending. This reduces the money multiplier and tends to contract the money supply. The other options describe effects opposite to the usual policy intention.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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