China's Increase in Reserve Requirements. The Chinese government purchased U.S. dollars in the foreign exchange market with Chinese currency. During the same? period, the Chinese sharply raised the reserve requirement on banks because they wanted to prevent the money supply from expanding too rapidly. The effect of the Chinese? government's purchase of U.S. dollars in the foreign exchange market with Chinese currency would be to (decrease or increase} the supply of Chinese currency.

Since the Chinese wanted to prevent the money supply from expanding too? rapidly, they raised the reserve requirement on? banks, (increasing or reducing) or

The ability of banks to make? loans, thereby (increasing or decreasing the Chinese money supply.