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26 January, 16:34

Which statement describes how borrowers will most likely benefit when the Fed reduces reserve requirements?

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  1. 26 January, 17:31
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    The options given to the above question are as follows:

    A. Loan requirements will likely be relaxed.

    B. Interest rates will likely decrease.

    C. Housing prices will likely decrease.

    D. Investment opportunities will likely improve.

    The correct option is B.

    Reserve requirement refers to the amount of cash that the Federal board of governors requires the commercial banks to hold in reserve against deposits made by their customers. The amount of money hold in reserve determine the amount of cash that will be available to the banks to carry out their financial transactions. If the Federal reduces the reserve requirement for the commercial banks, then the bank will have more money to lend to the borrowers and this will reduce the interest rates on the loans given out by the banks.
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