The required reserve ratio
A) is the amount of money that banks require borrowers to reserve in their accounts.
B) increases when withdrawals from a bank are made.
C) is the fraction of a bank's total deposits that are required to be held in reserve.
D) is higher for banks that make riskier loans.

Question

Quizplus · Accepted Answer

The required reserve ratio is the fraction of a bank's total deposits that are required to be held in reserve by the Federal Reserve. This ratio is set by the Fed and can vary over time. Option A is incorrect because borrowers do not need to reserve money in their accounts, but rather the bank needs to hold a fraction of the deposits as reserves. Option B is incorrect because the required reserve ratio is unrelated to withdrawals made by customers at the bank. Option D is also incorrect because the required reserve ratio is not based on the riskiness of loans made by the bank.

The Required Reserve Ratio