ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -It is the ratio of required reserves to deposits. If the required reserve ratio is 10 percent this means that banks must hold 10 percent of their deposits as required reserves.

Detailed explanation-2: -The commonly assumed requirement is 10% though almost no central bank and no major central bank imposes such a ratio requirement. the total reserve ratio (the ratio of legally required plus non-required reserve holdings of banks to demand deposit liabilities of banks).

Detailed explanation-3: -Key Takeaways. The reserve ratio, set by the central bank, is the percentage of a commercial bank’s deposits that it must keep in cash as a reserve in case of mass customer withdrawals. In the U.S., the Fed uses the reserve ratio as an important monetary policy tool to increase or decrease the economy’s money supply.

Detailed explanation-4: -In the U.S., the Federal Reserve dictates the amount of cash, called the reserve ratio, that each bank must maintain. 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.