Question

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold a. fewer reserves, so the money multiplier will fall. b. fewer reserves, so the money multiplier will rise. c. more reserves, so the money multiplier will fall. d. more reserves, so the money multiplier will rise.

Answer 1

Answer:

(c) more reserves, so the money multiplier will fall.

Explanation:

f the federal reserve increases the interest rates on banks,  money supply to the banks will increase. Banks will be unable to loan out money due to the high rates. The money supply in the availbale in the eceonomy will then decrease. The bank will keep more reserves, so the money multiplier will fall