The Primary Reason Commercial Banks Must Keep Required Reserves on Deposit

question 8

Multiple Choice

The primary reason commercial banks must keep required reserves on deposit at the Fed is to

• A) add to the liquidity of the commercial bank.
• B) allow the Fed to control the amount of bank lending.
• C) protect the deposits in the commercial bank against losses.
• D) ensure that depositors can withdraw their money if they wish to.

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Definitions:

Cost-Of-Living Adjustment

An increase in income or benefits to compensate for a rise in the prices of goods and services, maintaining the purchasing power.

Employment Contract

A formal agreement between an employer and an employee outlining the terms of employment, including responsibilities, compensation, and duration.

Loanable Funds

The money available in the financial system for lending to individuals, businesses, and the government.

Equilibrium Interest Rate

The interest rate at which the demand for funds equals the supply of funds in the market, bringing the financial market into balance.