Could anyone please help explain?
2007-03-17 17:08:43 · 2 answers · asked by one2many 1 in Social Science ➔ Economics
If the reserve requirement was increased, it would decrease the supply of money in circulation (since banks would be forced to keep more cash on hand). This almost never occurs as it would cause short-term liquidity problems for many banks.
Decreasing the reserve requirement would have the opposite effect, as banks would immediately loan the "free" money out and increase the amount of money in circulation.
On the open market, the first option would increase interest rates (less loanable funds available), the second would decrease interest rates.
2007-03-20 03:08:23 · answer #1 · answered by Anonymous · 0⤊ 0⤋
A decrease in the reserve requirement increases the amount of money on the open market.
2007-03-17 17:14:26 · answer #2 · answered by Santa Barbara 7 · 0⤊ 0⤋