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What happens when a bank is required to hold more money in reserve?


It has less money for loans


It has less money for operations


It has less money for interest payments


It has less money for withdrawals


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Chimara

Answer:

The correct answers are (A) and (C)

Explanation:

When a commercial bank is required to hold more money in reserve, this is usually a government or central bank policy (contractionary monetary policy) to reduce the amount of money in circulation.

The bank will then have less money to loan out and also less money to pay interest on loans. This gives the answers (A) and (C).

As for (B) and (D), cash-reserve ratio does not affect the basic flow of money in bank operations and a bank can't have less money for its customers to withdraw just because they are required to hold more money in their reserve. Every saver or customer remains entitled to all the money he saves in the bank.

ayfat23

Statements that explains what will happen if a bank is required to hold more money in reserve are;

It has less money for loans.

It has less money for interest payments.

  • Holding more money in reserve by bank would bring about reduction in the amount of money that banks have available to lend.

  • Then, the supply of money will now reduce, and this will make banks to charge more in order to lend out, which means the interest rates will goes up.

Therefore, option A ,C are correct.

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