Banking Awareness - Basics Of Banking & Banking Terminology
Which statement best describes the role of reserves in credit creation?
Which statement best describes the role of reserves in credit creation?
medium Q6 of 15
Step-by-Step Solution
Step 1: Understand reserve function
Reserves are mandatory holdings.Step 2: Link with lending ability
Higher reserves reduce funds available for lending.Final Answer:
They limit the amount banks can lend → Option CQuick Check:
Mandatory reserves restrict credit expansion ✅
Quick Trick: Reserve requirement = lending limit.
Common Mistakes:
- Assuming reserves generate credit.
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