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 options.

Question

Quizplus · Accepted Answer

A reserve requirement tax is a concept that effectively describes the impact of requiring minimum reserves to be held at the central bank. This requirement reduces the funds available for banks to lend out, acting similarly to a tax on their deposit-taking activities.

Requiring Minimum Reserves to Be Held at the Central Bank