The Central Bank of Trinidad and Tobago increased the reserve requirement from 9% to 12%. This monetary policy action would most likely:

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Question

The Central Bank of Trinidad and Tobago increased the reserve requirement from 9% to 12%. This monetary policy action would most likely:

Accepted Answer

Decrease the money supply in the economy — Award 1 mark for understanding that higher reserve requirements reduce funds available for lending. A is incorrect because higher reserves restrict lending capacity. C is incorrect because reserve requirements directly affect lending ability. D is incorrect because banks would have less money available to lend.

Answer

Increase the money supply in the economy

Answer

Encourage commercial banks to lend more money

Answer

Decrease the money supply in the economy

Answer

Have no effect on commercial bank lending

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