When a bank is required by law to hold some more money in reserve, It has less money for loans.
How the banking system works.
- People and companies deposit money into a bank.
- That money is then used to give out loans to people.
If a bank is required to hold back some more of that money that has been deposited, they will have less to make loans out of to give the people. This can increase interest rates.
In conclusion, option A is correct.
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