Answered

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What is the reserve requirement?

A. It is the amount of interest a central bank charges for money it loans.
B. It is the percentage of the workforce governments are required to have on hand for essential work.
C. It is a contractionary monetary policy meant to encourage economic growth.
D. It is the amount of money commercial banks are required to have on hand at the end of the day.

Sagot :

GinnyAnsweridn

Final answer:

The reserve requirement affects the amount of money banks can lend out, influencing interest rates and economic growth.


Explanation:

Reserve requirement is the percentage of each bank's deposits that it must legally hold as cash or with the central bank. If the reserve requirement is increased, banks have less money to lend out, affecting economic growth and interest rates.

When the reserve requirement is set higher, the money multiplier effect is reduced, resulting in a lower supply of loanable funds and higher interest rates, which can slow economic growth.

The Federal Reserve uses the reserve requirement as a tool of monetary policy to control the amount of money banks can lend out, influencing economic activity.


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