MY TEACHER SAID IN CLASS WHEN HE WAS DISCUSSING MONEY AND BANKING THE WORDS "REQUIRED RESERVES". DOES THIS HAVE THE SAME MEANING AS THE REQUIRED

RESERVE RATIO? PLEASE EXPLAIN.

Expert Answers

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They are not exactly the same thing, but they are definitely related to one another.

The required reserve ratio is the percent of each deposit that a bank must keep (that it may not loan out). The required reserves are all of the reserves that are kept because of this reuqirement (as opposed to excess reserves).

So if you go and deposit $1000 and the required reserve ratio is 10%, the bank has to hold on to $100 of your money.  If 9 other people do that, the required reserve ratio is still 10%, but the required reserves are $1000 because it's the total of all the $100s that were held.

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