Let RBAR represent the percentage of deposits that must be maintained by any bank to maintain its short-run liquidity. RBAR might be different for every bank. The Fed sets the reserve requirement well above RBAR
A) to make extra certain that a bank is always liquid.
B) to make it more likely that any given bank holds a known percentage of deposits in reserve.
C) to make the effect of a change in the monetary base on the money supply more predictable.
D) all of the above.
E) b and c only.

Question

Quizplus · Accepted Answer

The Fed sets the reserve requirement above RBAR to ensure banks hold a known percentage of deposits in reserve (B) and to make the effect of changes in the monetary base on the money supply more predictable (C).

Let RBAR Represent the Percentage of Deposits That Must Be