If the Fed were to impose a slight increase in the required reserves ratio, there would be _____.
an increase in the money supply
no change in the money supply
an increase, then a decrease, in the money supply
a decrease in the money supply
The correct answer is there would be a decrease in the money supply. That means that the amount money available to people would be reduced meaning that it would increase in value. This kind of a thing is called deflation and if it goes out of hand it can cause serious problems for the economy and the country.
