Question

Where is the supposed reserve requirement initially set up to 5%?

a) Federal Reserve
b) International Monetary Fund
c) World Bank
d) European Central Bank

Answer 1

The supposed 5% reserve requirement is related to central banks' regulations, specifically the Federal Reserve in the U.S., which mandated varying reserve requirements prior to March 2020. The correct answer is option a).

Step-by-step explanation:

The supposed reserve requirement initially set to 5% is not a common standard across the board for central banks. In the United States, the reserve requirement is determined by the Federal Reserve (often referred to as the Fed). Prior to March 2020, the Federal Reserve set varying reserve requirements for banks, based on the amount of deposits they held. However, as of the COVID-19 pandemic-induced recession in March 2020, the Federal Reserve has effectively eliminated the reserve requirement for all depository institutions, reducing it to 0%. Historically, the Fed has adjusted these requirements periodically but has avoided using large changes in reserve requirements to execute monetary policy as such drastic measures could be highly disruptive to the banking system.