ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -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.

Detailed explanation-3: -The correct option is (B) required reserves. The amount of deposits that banks must hold in reserve is required reserve.

Detailed explanation-4: -This amount is called the reserve requirement, and it is the rate that banks must keep in reserve and are not allowed to lend. The Federal Reserve’s Board of Governors sets the requirement as well as the interest rate banks get paid on excess reserves.

Detailed explanation-5: -Reserves are the amount of money that banks keep in vaults, and they are a fraction of all deposits made. In most countries, banks are heavily regulated and are required to keep a minimum percentage of all deposits, just in case someone wants to withdraw some money. This minimum percent is the reserve requirement.