The closer to the required minimum the banking system maintains its reserves, the tighter the control the Fed has over the money creation process through its other instruments.

Question

Quizplus · Accepted Answer

When the banking system maintains its reserves closer to the required minimum, it leaves less room for excess reserves and puts more control in the hands of the Fed to increase or decrease the money supply through tools such as open market operations and discount rate changes. Therefore, the statement is true.

The Closer to the Required Minimum the Banking System Maintains