Asked by Jamison Eddleman on Jun 08, 2024
Verified
Which statement is true?
A) Vault cash is considered a secondary reserve.
B) The larger the reserve requirement,the smaller the deposit expansion multiplier.
C) Open market operations are borrowing by banks from the Fed.
D) The comptroller of the currency does check clearing.
Deposit Expansion Multiplier
A ratio that indicates the potential increase in money supply through the banking system's ability to lend more based on reserves.
Vault Cash
The physical money that banks keep in their vaults as part of their reserves.
Reserve Requirement
The minimum amount of reserves that banks must hold, either in their vaults or on deposit with a central bank, as a regulatory measure intended to ensure bank liquidity.
- Understand the tools and objectives of the Federal Reserve System.
Verified Answer
NH
nusrat haqueJun 15, 2024
Final Answer :
B
Explanation :
The reserve requirement represents the percentage of deposits that banks are required to hold in reserve. The higher the reserve requirement, the less money banks can lend and the lower the deposit expansion multiplier. Vault cash is considered a primary reserve, not a secondary reserve. Open market operations involve the sale or purchase of government securities by the Fed to increase or decrease reserves in the banking system. The comptroller of the currency oversees and regulates national banks, but does not typically handle check clearing.
Learning Objectives
- Understand the tools and objectives of the Federal Reserve System.