Question

13. What are reserve requirements (related to the Federal Reserve System)? (Lesson 6, page 4) (answer this in simple words)

Answer 1

Reserve requirements are rules set by the Federal Reserve that determine how much money banks must keep on hand and not lend out. For example, if a bank has $100 in deposits and the reserve requirement is 10%, the bank must keep $10 in reserve and can lend out the remaining $90. These requirements help ensure that banks have enough money available for people who want to withdraw their deposits.