In easy monetary policy, decreasing excess reserves rather than increasing them proves more effective in creating money through loans and overcoming banks' reluctance to lend during recessions.
Increasing excess reserves in banks for easy monetary policy is not conducive to achieving the desired goal of creating more money through expansionary monetary policy. During a recession, banks may choose to hold excess reserves as a precautionary measure, leading to a situation where the central bank's effort to increase the money supply through loans may be hindered.
Alternatively, decreasing the reserve requirement can be a more effective method of implementing expansionary monetary policy, as it makes more money available to the economy by reducing the amount banks are mandated to hold in reserves.
This hesitancy to lend during a recession is due to banks' concerns about loan repayment risks when the economy is contracting, which can impact the effectiveness of expansionary monetary policy in stimulating economic activity.
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