Question 32
Financial InstitutionsCommercial bank reserves at the Central Bank have the effect of
- A.controlling credit and money supply
- B.discouraging banking operations
- C.advancing trade prospects
- D.reducing bank frauds.
Show the answer and explanation
Answer: A (controlling credit and money supply)
Explanation
Money kept at the Central Bank cannot be lent out, so required reserves limit bank lending and the money supply.