Which statement is FALSE? A. When a bank borrows reserves from the Fed itself, i

Question

Which statement is FALSE? A. When a bank borrows reserves from the Fed itself, it is said to be borrowing at the discount window. B. If the Fed reduces reserve requirements, banks will lend a smaller percentage of their deposits, leading to fewer loans and a decrease in the money supply via the money multiplier. C. A change in reserve requirements or a change in the discount rate will have an effect on the money supply. D. Banks typically borrow in the federal funds market when they have insufficient reserves to meet the reserve requirement of the Federal Reserve.

Explanation / Answer

Option (B) is incorrect.

When Fed reduces reserve requirement, banks keep a lower amount as % of deposit in required reserve, so excess reserves rises, which banks can lend. This leads to more loans and increase in money supply.

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