When the Fed increases the reserve requirement, banks: must increase the dollar volume of loans they make to customers. must pay more to borrow from the Fed. have fewer funds available for lending. will find their balance sheets temporarily out of balance.

The correct answer is that the banks will have fewer or smaller funds available for the lending

Explanation:

Federal Reserve is the one who is the system of the central banking, who is responsible for setting the monetary policies. And if the Fed increases the requirement of the reserve, banks will unable to lend more amount of money to the clients of the firm or business. As they they to reserve the amount to the Fed.