The reserve requirement is
A) the fraction of deposits the Fed is required to hold in its vaults in case member banks ask to draw on their accounts.
B) the fraction of currency held by banks as required by law.
C) the fraction of deposits banks are required to hold as reserves.
D) the fraction of the money base held in reserve by member banks of the Federal Reserve System.
E) none of the above.

Question

Quizplus · Accepted Answer

The reserve requirement refers to the fraction of deposits that banks are mandated to hold as reserves, ensuring they have enough funds available to meet withdrawal demands from depositors. This is a regulatory measure to maintain the stability of the banking system.

The Reserve Requirement Is