Required reserves:
A) Are equal to the required reserve ratio times total reserves.
B) Are the minimum amount of reserves a bank is required to hold.
C) Represent the dollars a bank can lend.
D) Must be held in a bank's vault.

Question

Quizplus · Accepted Answer

Required reserves refer to the minimum amount of reserves that a bank must hold, as determined by the central bank or regulatory authority. This requirement is designed to ensure that banks maintain a certain level of liquidity and can meet their obligations to depositors. The required reserve ratio is the percentage of deposits that banks must hold in reserve, but the actual dollar amount of required reserves can change as deposits and other factors fluctuate. Required reserves do not represent the dollars that a bank can lend, but rather the amount that it must keep on hand. These reserves are typically held in accounts with the central bank, rather than in a bank's vault.

Required Reserves