Overview
Reserve requirements are a critical aspect of banking regulation that ensures financial stability by mandating banks to hold a certain percentage of deposits as reserves. This regulation helps prevent bank runs and maintains trust in the banking system. The money multiplier effect illustrates how ba...
Key Terms
Example: If the reserve ratio is 10%, a bank must keep $10 for every $100 deposited.
Example: With a reserve ratio of 10%, the money multiplier is 10.
Example: Cash is the most liquid asset.
Example: The Federal Reserve is the central bank of the United States.
Example: Lowering interest rates is a form of expansionary monetary policy.
Example: When you deposit $100 into your savings account.
Related Topics
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Explore various tools used by central banks to influence the economy, including interest rates and open market operations.
intermediateInflation Control
Learn how central banks manage inflation through monetary policy and reserve requirements.
intermediateBanking Regulations
Understand the laws and regulations that govern banking practices and ensure financial stability.
advancedKey Concepts
Reserve RatioMoney MultiplierBank LendingCentral Bank Policies