Which of the following statements BEST describes why a decrease in reserve requirements often results in an increase in the money supply?
A) A decrease in reserve requirements gives banks more money to better determine their interest rates.
B) A decrease in reserve requirements gives banks more money to pay off their debts.
C) A decrease in reserve requirements gives banks more money to lend out.
D) A decrease in reserve requirements gives banks more money to offset lower interest rates.
E) A decrease in reserve requirements gives banks more money to reward their employees for meritorious financial ventures.
Answer: C
Explanation: C) A decrease in the reserve requirement frees up extra money that can be distributed in the form of loans, for example.
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