Final answer:
Reserve requirements are the amount of funds that a depository institution must hold in reserve against specified deposit liabilities. They are determined by applying reserve ratios specified by the Federal Reserve.
Step-by-step explanation:
Reserve requirements refer to the amount of funds that a depository institution must hold in reserve against specified deposit liabilities. It is determined by applying reserve ratios specified by the Federal Reserve. These ratios vary based on the amount of deposits at the institution. For example, the reserve ratio may be 3% for deposits up to a certain amount, and 10% for any amount above that. The purpose of reserve requirements is to ensure that banks have enough funds to meet the demand for withdrawals while maintaining stability in the financial system.