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1. The reserve rate is exactly how much money a financial institution must have on hand...

1. The reserve rate is exactly how much money a financial institution must have on hand at any time.

- True or False

2. M-2 supply is always larger than what?

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Answer #1

1. The reserve rate is eactly how much money a financial institution must have on hand at any time. This statement is true. The reserve rate or reserve ratio is the proportion of the balances of the depositors that a financial institution must have on hand as cash. It affects the supply of money in a country at any particular time.

Therefore, the given statement is true.

2. M-2 includes savings deposits, cash and checking deposits and other time deposits that have less liquidity. M-2 is always larger than M-1. M-1 includes demand deposits, cash, coins and checking accounts. M-1 includes things that are highly liquid in nature. M-2 includes all of M-1 and is always larger than M-1.

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