Amount of money and liquid assets that Federal Reserve System member banks must hold in cash or on deposit with the Federal Reserve System, usually a specified percentage of their demand deposits and time deposits. While this is a way of ensuring that the banks always have a sufficient amount of cash for depositors, it is also a way of controlling the money supply. Increasing the reserve requirement will decrease the money supply, and decreasing the reserve ratio will increase the money supply. also called Federal Reserve requirement or reserve ratio.

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