Question

The reserve ratio is the____________.A. Percentage of excess reserves held by banks.B. Fraction of deposits that banks hold as excess reserves.C. Number of deposit dollars the banking system canD. Percentage of total deposits that are held as bank reserves.

Answer 1

Answer:

D. Percentage of total deposits that are held as bank reserves.

Explanation:

The reserve ratio is the percentage of total deposits that are held as bank reserves. They are very important tools for controlling the financial market by the central bank.

• If the reserve ratio or cash reserve ratio is lowered by the central bank, there is more money and commercial banks can disburse out more loans.
• When the central bank wants to control inflation due to high amount of money in the economy, it will increase the reserve ratio.