Reserve requirements are requirements for banks to hold reserves based on a percentage of transaction type deposits as a tool for central banks to use for monetary policy. Reserve requirements increase the marginal cost of a bank's transaction deposits.

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Reserve requirements are a tool used by central banks to influence the money supply and are designed to increase the cost of holding deposits, thereby encouraging banks to lend more and stimulate economic growth. This is done by requiring banks to hold a certain percentage of their transaction deposits in reserve, which reduces their available funds for lending and increases their marginal cost.

Reserve Requirements Are Requirements for Banks to Hold Reserves Based