The required reserve ratio is the
A)amount of excess reserves the bank holds just in case.
B)total amount of reserves the bank holds in its vaults.
C)total amount of reserves the bank holds at the Fed.
D)amount of reserves banks are required by the Fed to be held as a percentage of the bank's deposits.
E)amount of reserves banks are required by the Fed to be held as a percentage of the bank's loans.

Question

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The required reserve ratio is the amount of reserves banks are required by the Fed to be held as a percentage of the bank's deposits. This requirement is set by the Fed to ensure that banks have enough reserves to cover withdrawals and to prevent excessive lending that could lead to a bank run.

The Required Reserve Ratio Is the