Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
loans issued by the bank
B
the bank's total assets
C
the bank's net income
D
the central bank's interest rate
Understanding the Answer
Let's break down why this is correct
Answer
If the required reserve ratio is to bank liquidity, then the total amount of checkable deposits is to the money supply. The required reserve ratio is the percentage of deposits that banks must hold in reserve and not lend out, which affects how much money they can create through loans. When we think about checkable deposits, these are the funds that customers can access easily, like money in their checking accounts. The total amount of checkable deposits represents the overall money supply because it shows how much money is available for spending in the economy. For example, if a bank has $1 million in checkable deposits and a required reserve ratio of 10%, it must keep $100,000 in reserve, allowing it to lend out $900,000, thus influencing the money supply.
Detailed Explanation
The required reserve ratio tells us how much money a bank must keep on hand. Other options are incorrect because Some might think total assets are the same as loans; People may confuse net income with loans.
Key Concepts
Bank Reserve Management
Liquidity Management
Monetary Policy
Topic
Bank Reserve Management
Difficulty
easy level question
Cognitive Level
understand
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