7. How would an increase in the required reserve ratio affect borrowers?

An increase in the reserve ratio would mean that the Bank has to keep more money "in reserve" against the loans it makes.

Ultimately that would mean a) there is less money available for the bank to lend b) that it would be more expensive to borrow for these reasons:

- scarcity of funds available

- the bank will pass on the cost of retaining capital as reserves

- it happens during times of lowered risk appetite so banks will charge more for perceived risk