Question

The Federal Reserve calculates required reserves held by a bank by:

Group of answer choices

adding the capital which the bank holds to the cash at the bank

adding the cash which the bank holds along with the reserves which the bank holds at the Fed.

adding the securities which a bank holds to the loans which a bank has made to other banks

adding the demand and savings deposits

Answer 1

Answer to the following question:

Option b: Adding the cash which the bank holds along with the reserves which the bank holds at the Fed.

Explanation: The required reserve of the bank is of two types. One is called the Cash reserve ratio which is kept by the with the central bank (Fed). Another is the SLR (Statutory Liquidity Ratio) which the commercial banks has to maintain in the form of cash with themselves. Summing up both, we get the required reserve, receprocal of which gives the sze of the muney multiplier.

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