The primary function of reserve requirements is to serve as
A) a source of bank liquidity.
B) an instrument of monetary control.
C) a means of reducing bank profits.
D) a means of controlling the amount of currency in the banking system.

Question

Quizplus · Accepted Answer

Reserve requirements are a tool used by central banks, like the Federal Reserve in the United States, to control the money supply and influence short-term interest rates. By adjusting the required reserves that banks must hold, the central bank can increase or decrease the amount of money that banks have available to lend. This, in turn, can affect the level of economic activity and inflation.

The Primary Function of Reserve Requirements Is to Serve as