What would most likely happen if the federal reserve decided to increase the reserve requirement in banks? a) the amount of federal taxes people owe would decrease. b) the amount of federal taxes people owe would increase. c) the amount of money circulating in the economy would decrease. d) the amount of money circulating in the economy would increase.

C. The amount of money circulating would decrease.

If the Federal Reserve decides to lower the reserve ratio through an expansionary monetary policy, commercial banks are required to keep less cash on hand and are able to increase the number of loans to give consumers and businesses. This increases the money supply, economic growth and the rate of inflation. The opposite is also true. So, a higher reserve rate means the banks have to keep more cash on hand, decreasing the money supply.

C) The amount of money circulating in the economy will decrease.