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What factors reduce the money-creating abilities of the bank

What factors reduce the money-creating abilities of the bank

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Answer #1

Factors that reduce the money creating abilities of the bank:
1. Increase in reserve requirement by the FED reduces money creating abilities of the bank. Higher the reserve requirement lower is the loan giving capacity of banks and hence lower profits.
2. The increase in discount rate by Fed increases bank loan rate and hence demand for loan decreases which reduces the money creating abilities of the bank.

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