Reserve Ratio (Requirement)
Definition
The reserve ratio refers to the percentage of deposits that banks are required to hold as reserves, which cannot be lent out or invested.
Related terms
Excess Reserves: The amount of reserves held by banks above the required reserve ratio.
Fractional Reserve Banking: A banking system where only a fraction of deposits is kept as reserves, allowing banks to lend out the rest.
Money Multiplier: The factor by which an initial change in reserves will ultimately increase the money supply through multiple rounds of lending.
"Reserve Ratio (Requirement)" appears in:
Study guides (1)
AP Macroeconomics - 5.1 Fiscal and Monetary Policy Actions in the Short-Run
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Cram Mode
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AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.