Requiring minimum reserves to be held at the central bank is the equivalent of
A)buffer reserves.
B)a reserve requirement tax.
C)the target reserve ratio.
D)contagious effects of liquidity risk.
E)None of the above.

Question

Quizplus · Accepted Answer

Requiring minimum reserves to be held at the central bank is equivalent to a reserve requirement tax because it mandates banks to hold a certain percentage of deposits as reserves, effectively reducing the amount they can use for lending and investment, similar to a tax on their available funds.

Requiring Minimum Reserves to Be Held at the Central Bank