What does a significant rise in the reserve requirement usually lead to?

A significant rise in the reserve requirement typically leads to less money available for lending. This is because the reserve requirement dictates the percentage of deposits that banks must hold in reserve and not use for lending or investment. When the reserve requirement is increased, banks are required to hold more funds in reserve, reducing the amount of capital available for loans.

As a result, banks may not be able to extend as many loans as they could previously, which can lead to tighter credit conditions for consumers and businesses. This constriction on lending can slow down economic activity, as individuals and companies may find it more challenging to obtain financing for various projects and purchases.

Thus, an increase in the reserve requirement restricts the money supply in the economy, leading to less lending and potentially impacting overall economic growth.