ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Bank reserves are termed either required reserves or excess reserves. 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 correct option is (B) required reserves. The amount of deposits that banks must hold in reserve is required reserve.

Detailed explanation-3: -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-4: -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-5: -Required reserves are a percentage of checkable deposits (checking account deposits) set by the central bank’s (the Federal Reserve in the US) reserve requirement. Excess reserves is the amount of total reserves the bank can loan out.