Chapter 15, Problem 6AA

To determine

To choose: The suitable word that best completes the sentence.

Explanation of Solution

The suitable word that best completes the sentence is portion.

Fed has set specific reserve requirements for banks. Banks has to hold certain percentage of their deposits as cash. The remaining portion or the reserves can be used by the banks for lending purposes. When the banks have maintained the amount of deposits required, and still deposits remain with the banks that do not need to be reserved, it can be used for making more lending.

Economics Concept Introduction

Introduction:

Fractional reserve banking- The banking system in the United States is based on a fractional reserve banking system. Fed has set some specific reserve requirements for banks since 1913. In this system, a small fraction of the deposits is kept in hand in a bank and the remaining or reserve is available for lending.