Total reserves equal

Question

Quizplus · Accepted Answer

Total reserves refer to the sum of required reserves and excess reserves. Required reserves are the amount of reserves that banks are legally required to hold based on their deposits and the required reserve ratio set by the central bank. Excess reserves are any reserves held by banks above and beyond their required reserves. Therefore, choice (B) is correct.

The monetary base is composed of currency in circulation and bank reserves. Total reserves are a part of bank reserves, so subtracting currency in circulation from the monetary base gives us excess reserves plus required reserves, which is equal to total reserves. Therefore, choice (C) is also correct.

Since choices (B) and (C) are both correct, the best answer is D.

Total Reserves Equal