Commercial bank reserves at the Central Bank have the effect of?
Answer Details
Commercial bank reserves at the Central Bank have the effect of controlling credit and money supply.
Commercial banks are required to hold a certain percentage of their deposits as reserves at the Central Bank. The Central Bank has the power to adjust this reserve requirement, which affects the amount of money banks have available to lend out. By increasing the reserve requirement, the Central Bank can reduce the amount of money banks have available to lend, which in turn can help to control inflation by reducing the money supply. Similarly, by decreasing the reserve requirement, the Central Bank can increase the amount of money banks have available to lend, which can help to stimulate economic growth. Therefore, the reserves held by commercial banks at the Central Bank have a direct impact on the amount of money available in the economy, and therefore on credit and money supply.