The basic purpose of imposing legal reserve requirements on commercial bank is to?

Assessment: JAMB UTME - Economics - 1990 Subject: Economics

Question 1 Report

The basic purpose of imposing legal reserve requirements on commercial bank is to?
Answer Details
The basic purpose of imposing legal reserve requirements on commercial banks is to provide a device through which credit creation by banks can be controlled. Legal reserve requirements refer to the percentage of deposits that banks are required to hold in reserve as cash or deposits with the central bank. By increasing or decreasing the legal reserve requirement, the central bank can control the amount of money that banks can create through lending. This is an important tool for managing the money supply and maintaining price stability in the economy.
Read lesson note on Banking (JAMB)
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