The most important reason for having a legal reserve requirement is to
A) ensure bank safety.
B) prevent banks from reaping tremendous profits as intermediaries.
C) keep currency in circulation.
D) control the money supply.
E) provide enough money to meet everyday needs, such as check cashing and savings withdrawals.

Question

Quizplus · Accepted Answer

The legal reserve requirement is primarily used by central banks to control the money supply in the economy. By adjusting the reserve requirement, central banks can influence the amount of money that banks can lend, thereby affecting economic activity.

The Most Important Reason for Having a Legal Reserve Requirement