Economics Part B

Table of Contents

Reserve ratio

Understanding What is Reserve ratio

The ratio between the total cash held in the bank’s safe and the balances deposited in it in current accounts. For example: if bank holds $50k and the balance of current accounts is $100k , the reserve ration is one half (1/2).

The banks are required to maintain a reserve ratio set by the central bank. In other words, the reserve ratio limits the amount of loans the bank is permitted to provide its customers.