When the Fed raises the required reserve ratio, then the:   a. ability of banks to make loans is restricted.   b. ability of banks to make loans is enhanced.   c. ability of banks to make loans is unaffected.   d. interest rate that banks pay to the Fed to borrow money is increased.   e. interest rate that banks pay to other banks to borrow money is increased.

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
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When the Fed raises the required reserve ratio, then the:
  a.
ability of banks to make loans is restricted.
  b.
ability of banks to make loans is enhanced.
  c.
ability of banks to make loans is unaffected.
  d.
interest rate that banks pay to the Fed to borrow money is increased.
  e.
interest rate that banks pay to other banks to borrow money is increased.
 
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Step 1

They are required to keep a higher proportion of all deposits made. In the event that banks choose to advance out the whole overabundance holds the cash supply can increment by as much as 20 x (1/0.08)=$250. On the other hand, an increment in required hold proportion raises the save proportion, brings down the cash multiplier, and diminishes the cash supply.

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