Final answer:
The cash reserve ratio is the percentage of a bank's deposits that must be kept in reserves as mandated by the central bank, affecting the amount of money that can be lent out.
Step-by-step explanation:
The correct answer to the student's question is b) Cash reserve ratio. The cash reserve ratio refers to the percentage of a commercial bank's deposits that must be kept in the form of cash reserves either in the bank's vault or at the central bank and not lent out to borrowers. This is a regulation put in place by the central bank as a part of monetary policy to ensure that banks maintain a buffer of funds for safety and liquidity purposes, and to control the money supply in the economy.
Changing the reserve requirement is one method used by central banks to influence the lending capabilities of commercial banks. When a central bank raises the reserve requirement, banks hold more money in their reserves, which reduces the amount of money they have available to lend out. Conversely, if the central bank lowers the reserve requirement, banks can lend out a greater portion of their deposits.