The fraction of deposits that banks must keep on hand or at the Federal Reserve is called the

Question

Quizplus · Accepted Answer

The required reserve ratio refers to the fraction of deposits that banks are required to keep on hand or at the Federal Reserve. This is set by the Federal Reserve and can affect the amount of money that banks are able to lend out through the deposit multiplier and money multiplier mechanisms. A is incorrect because the discount rate is the interest rate at which banks can borrow money from the Federal Reserve. C and D are incorrect because they refer to the mechanisms through which deposits can be multiplied into the money supply, rather than the actual fraction that banks are required to hold in reserve.

The Fraction of Deposits That Banks Must Keep on Hand