The book ratio could be the small small fraction of total build up that the bank keeps readily available as reserves (i.e. Cash in the vault). Theoretically, the book ratio may also just take the as a type of a required book ratio, or the small small fraction of deposits that the bank is needed to carry on hand as reserves, or a reserve that is excess, the small fraction of total build up that the bank chooses to help keep as reserves far above exactly what it really is necessary to hold.
Given that we have explored the conceptual meaning, why don’t we have a look at a concern linked to the book ratio.
Suppose the necessary reserve ratio is 0.2. If an additional $20 billion in reserves is inserted in to the bank system through a open market purchase of bonds, by simply how much can demand deposits increase? (more…)