c) If a central bank raises interest rates on reserves, banks are less likely to lend money.
When a central bank raises interest rates on reserves, banks are less likely to lend money because it becomes less profitable to lend out funds. When interest rates on reserves are high, banks can make more money by simply holding onto their reserves and collecting interest. This means there is less incentive to lend money out to borrowers and they are more likely to keep their reserves on hand.
Additionally, when interest rates are high, borrowers are less likely to take out loans because they would have to pay higher rates of interest on the money they borrowed. Therefore, when a central bank raises interest rates on reserves, it tends to discourage banks from lending money and can lead to a decrease in loan activity.
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