Question

One regulation the Federal Reserve imposes on banks is that they guarantee a portion of their money be available for their depositors to withdrawal. If this regulation didn't exist, what effect might this have on the economy? (1 point)
Group of answer choices

Stock market returns would be higher.

People would be hesitant to put their money in banks.

Interest rates for lending would decrease.

Banks would be able to loan more money.

Answer 1

Answer: Banks would be able to loan more money.

Explanation:

The Fed does indeed do this and it is called the Reserve Requirement. It is a percentage of deposits that banks are to keep with the Fed and it has the effect of reducing the amount of money that banks have available to loan out to entities.

The Fed sets the percentage that the banks are to keep with it and this enables them to use it as a tool to control money supply because they could increase or decrease it depending on how much they want banks to lend out.