Interest rates are closely tied to the rate of inflation

What is a transactions balance?

A) the cash a firm holds to counter the uncertainty surrounding its future cash needs B) the cash a firm places into short-term investments C) the cash a firm holds in order to pay its bills D) the cash a firm holds to gain tax advantages

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.