For the CFA book, increase in bank reserve lead to an increase in aggregate demand and a decrease result in lower money supply. I don’t agree with this ad I think the opposite is true. Pls help me clarify
Yeah I agree but lets look at it this way…
Increase in bank reserve which is as a result of increase in Cash Reserve Requirement (CRR) to meet depositors demand as at when due, will lead to lower money supply and the opposite will occur when there is a decrease in CRR.
Aggregate Demand (AD) means the total level of goods and services demanded for by all consumers at a price level and specific period of time.
In line with the above, i think its from the angle of the amount of loans consumers will have access to meet their daily purchases. so, therefore, the price level of goods and service is will fall as aggregate demand increase and vice-versa.
Does that make sense??
No
Increase in bank reserves = Increase in excess reerves = Increase in money supply = reduction in interest rates = increase in consumption and investment…
Disclaimer: I’m not sure about this though.
decrease in reserve rates > increase in money supply > increase in AD. this should be correct.
I am confused though too
lol. read it uncarefully.
increase in reserve rate it’s not a same thing as an increase in bank reserves. it has opposite effect.
so decrease in reserve rate> increase in bank reserves > increase in money supply and AD …