if the fed raises reserves requirements, then interest rates will decline and also it the decrease the size of the money supply.
Central banks use different methods to increase or decrease the amount of money in the banking system. These actions are called as monetary policy. While the Federal Reserve Board—commonly known as the Fed—can print money at its discretion in an effort to increase the amount of money in the economy, this is not the standard used, at least not yet in America.
The Federal Reserve Board, which is the agency that oversees the Federal Reserve System, oversees all domestic monetary policy. They are often referred to as the Central Bank of America. This means they are generally responsible for controlling inflation and managing short-term and long-term interest rates. They make these decisions to stimulate the economy, and controlling the money supply is an important tool they use.
Conversely, by increasing the banks' reserve requirements, the Fed can reduce the size of the money supply.
The Fed can also change short-term interest rates by lowering (or raising) the discount rate that banks pay on short-term loans from the Fed.
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