Question

When a bank has excess reserves, it can choose to turn its reserves into loans for consumers and businesses. Generally speaking, when banks increase the number of loans available, interest rates will

Answer 1

Answer:

reduce

Explanation:

Note that the bank has excess funds and thus wants to increase the number of available loans which in turn increases investment in the economy. For this strategy to work, the bank will reduce the interest rate it places on loans in order to entice its customers to procure the loans it offers.

For example, a bank that usually gives out 150 loans at 15% Interest rate may because of new banking policy and excess reserve decide to increase its loan capacity to around 300 loans per annum at an interest rate of 10%.