When there is a reserve requirement,banks
A)must hold exactly the required quantity of reserves.
B)may hold more than,but not less than,the required quantity of reserves.
C)may hold less than,but not more than,the required quantity of reserves.
D)must seek the Fed's permission whenever they wish to expand or contract their loans to customers.

Question

Quizplus · Accepted Answer

Banks are required to keep a certain percentage of their deposits as reserves, but they are allowed to hold more than this required amount. This is known as excess reserves, and it can be used to meet unexpected withdrawals or to make additional loans. Banks, however, cannot hold less than the required amount of reserves as this could result in penalties or sanctions from regulatory agencies. They also do not need to seek Fed's permission whenever they wish to expand or contract their loans, although changes in reserve requirements can affect their lending practices.

When There Is a Reserve Requirement,banks