ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The reserve ratio – also known as bank reserve ratio, bank reserve requirement, or cash reserve ratio – is the percentage of deposits a financial institution must hold in reserve as cash.

Detailed explanation-2: -Key Takeaways Reserve requirements are the amount of funds that a bank holds in reserve to ensure that it is able to meet liabilities in case of sudden withdrawals. Reserve requirements are a tool used by the central bank to increase or decrease the money supply in the economy and influence interest rates.

Detailed explanation-3: -The Federal Reserve requires banks and other depository institutions to hold a minimum level of reserves against their liabilities. Currently, the marginal reserve requirement equals 10 percent of a bank’s demand and checking deposits.

Detailed explanation-4: -Net transaction account balances above the low reserve tranche were subject to a reserve requirement ratio of 10 percent.

Detailed explanation-5: -banks must keep 20 percent of each deposit and then can lend out the rest. As borrowers pay back loans, or banks get additional deposits, banks can continue to lend out money.