Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The minimum reserves required by the central bank
B
The funds a bank holds beyond the required reserves
C
The total assets of a bank
D
The ratio of deposits to loans
Understanding the Answer
Let's break down why this is correct
Answer
Excess reserves are the extra funds that a bank holds beyond the required amount set by the central bank. Banks are required to keep a certain percentage of their deposits as reserves to ensure they can meet withdrawal demands. Any amount above this required reserve is considered excess reserves. For example, if a bank has $1 million in deposits and must keep $100,000 as reserves, any amount above that $100,000 is excess reserves. These excess reserves can be used by banks to lend more money or invest, which can help stimulate the economy.
Detailed Explanation
Excess reserves are the extra money a bank keeps beyond what it must hold. Other options are incorrect because Some might think minimum reserves are excess; Total assets include everything a bank owns, not just the extra money.
Key Concepts
excess reserves
Topic
Bank Reserve Management
Difficulty
easy level question
Cognitive Level
understand
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