ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Historically, the reserve rate has ranged from zero to 10% of bank deposits. Bank reserves are the minimal amounts of cash that banks are required to keep on hand in case of unexpected demand.

Detailed explanation-2: -Notes: The Board’s Regulation D (Reserve Requirements of Depository Institutions) provides that reserve requirements must be satisfied by holding vault cash and, if vault cash is insufficient, by maintaining a balance in an account at a Federal Reserve Bank.

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.

Detailed explanation-4: -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.