Total reserves are the sum of and . A) excess reserves; borrowed reserves B) required reserves; currency in circulation C) vault cash; excess reserves D) excess reserves; required reserves
Question
Total reserves are the sum of and . A) excess reserves; borrowed reserves B) required reserves; currency in circulation C) vault cash; excess reserves D) excess reserves; required reserves
Solution
The correct answer is D) excess reserves; required reserves. Total reserves in a bank are made up of required reserves, which is the minimum amount of reserves a bank is required to hold by law, and excess reserves, which is any cash over and above the required reserves that the bank chooses to hold.
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