An increase in the rate of interest paid on reserves would be an example of:
A. expansionary policy that increases the demand for reserves and reduces short-term interest rates.
B. contractionary policy that increases the demand for reserves and raises short-term interest rates.
C. expansionary policy that increases the demand for reserves and raises short-term interest rates.
D. contractionary policy that reduces the supply of reserves and raises short-term interest rates.
Ans: B. contractionary policy that increases the demand for reserves and raises short-term interest rates.
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