ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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held as deposits with the Federal Reserve System.
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equal to its checkable deposits.
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equal to its transactions deposits.
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none of these.
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Detailed explanation-1: -The required reserve is the minimum cash the bank can keep on hand. The excess reserve is any cash over the required minimum that the bank is holding in its vault rather than lending out to businesses and consumers.
Detailed explanation-2: -The federal reserve requirement is the amount of money the Federal Reserve requires its member banks to store in its vaults overnight. Requiring banks to have a reserve requirement serves to protect them and their customers from a bank run.
Detailed explanation-3: -The commonly assumed requirement is 10% though almost no central bank and no major central bank imposes such a ratio requirement. With higher reserve requirements, there would be less funds available to banks for lending. Under this view, the money multiplier compounds the effect of bank lending on the money supply.