Question

The primary purpose of the legal reserve requirement is toa. Prevent banks from hoarding too much vault cash.b. Provide a means by which the monetary authorities can influence the lending ability of commercial banks.c. Prevent commercial banks from earning excess profits.d. Provide a dependable source of interest income for commercial banks.

Answer 1

Answer: The correct answer is choice b.

Explanation: The primary purpose of the legal reserve requirement is to provide a means by which the monetary authorities can influence the lending ability of commercial banks. Basically, it is the Federal Reserve’s way of controlling the money supply.