If reserve requirements were eliminated in the future, as some economists advocate, whateffects would this have on the size of money market mutual funds?

Eliminating reserve requirements would have several potential effects on the size of money market mutual funds.

1. Increased Bank Lending: Without reserve requirements, banks would have more funds available to lend. This could potentially lead to an increase in bank lending.

2. Decreased Demand for Money Market Mutual Funds: If banks increase their lending, interest rates could potentially decrease. Lower interest rates could make money market mutual funds less attractive to investors, as these funds typically invest in short-term, high-quality investments that offer competitive returns. As a result, the size of money market mutual funds could decrease.

3. Increased Risk: Without reserve requirements, banks may take on more risk, which could lead to more bank failures. If investors perceive banks as riskier, they may move their money to safer investments like money market mutual funds, potentially increasing the size of these funds.

4. Regulatory Changes: The elimination of reserve requirements could lead to other regulatory changes. For example, regulators might impose other types of requirements on banks to ensure their stability. These changes could also affect the size of money market mutual funds.

In conclusion, the effect of eliminating reserve requirements on the size of money market mutual funds would depend on a variety of factors, including how banks respond to the change, how investors perceive the risk of banks, and how regulators respond.