The Primary Purpose of the Legal Reserve Requirement Is to

question 122

Multiple Choice

The primary purpose of the legal reserve requirement is to

• A) prevent banks from hoarding too much vault cash.
• B) provide a means by which the monetary authorities can influence the lending ability of commercial banks.
• C) prevent commercial banks from earning excess profits.
• D) provide a dependable source of interest income for commercial banks.

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Definitions:

Technical Substitution

The process of replacing one input or factor of production with another to maintain the same level of output.

Marginal Product

The additional output that results from adding one more unit of a specific input, keeping all other inputs constant.

Slope

In mathematics and economics, it represents the rate at which one variable changes over the change in another variable, often depicted in graph form.

Isoquant

A line illustrating various input combinations yielding an identical output level according to production theory.