Question

Disadvantages of using reserve requirements to control the money supply include A. creating potential liquidity problems for banks with high levels of excess reserves. B. their overly-powerful impact on the money supply C. their overly-powerful impact on the monetary base D. all of the above.

Answer 1

Answer:

The correct answer is C

Explanation:

Reserve requirement is the amount of money or cash which the banks must maintain in their closest Federal Reserve Bank or in their vaults. Its motive is to control the growth in the money supply.

But at same time it has a disadvantage for using the reserve requirement for controlling the money supply as it over powerful the impact on the monetary base of the reserve requirement.