Question

Which of the following best explains why raising the required reserve ratio

Answer 1

Answer:

When the required reserve ratio is high, banks must loan out a smaller portion of their reserves resulting in fewer loans.

Explanation:

Required reserve ratio is the amount of liabilities in which a bank must hold on to. The banks are meant to loan very little or none of this reserve ratio.

These reserves are normally kept in vaults and useful for emergency in the case of demand of withdrawal of a huge amount from the bank. This explains why the banks must loan out a smaller portion of their reserves which results in fewer loans.