Which of the following is correct? When there is a reserve requirement,banks
A) must hold exactly the required quantity of reserves.
B) may hold more than,but not less than,the required quantity of reserves.
C) may hold less than,but not more than,the required quantity of reserves.
D) must seek the Fed's permission whenever they wish to expand or contract their loans to customers.

Question

Quizplus · Accepted Answer

When there is a reserve requirement, banks are required to hold a minimum amount of reserves. They are allowed to hold more than the required amount but not less. Holding less than the required amount would lead to penalties or fines from the Federal Reserve. Therefore, option B is the correct choice. Option A is incorrect because banks are allowed to hold more reserves than required. Option C is incorrect because banks cannot hold less than the required amount. Option D is not related to the reserve requirement but rather refers to the process of changing bank's loan portfolios.

Which of the Following Is Correct? When There Is a Reserve