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The deposit balances kept by all commercial banks with the central bank are known as ________.

  • The deposit balances kept by all commercial banks with the central bank are known as Cash reserves.
  • Commercial banks must maintain a certain percentage of their deposits as cash reserves with the central bank, typically set by the central bank's monetary policy.
  • Cash reserves serve as a buffer for commercial banks against unexpected withdrawals by depositors and as a means for the central bank to control the money supply.
  • By adjusting the required reserve ratio, the central bank can influence the amount of money that banks can lend out and thus affect the money supply in the economy.
  • The central bank may also pay interest on cash reserves held by commercial banks to influence the banks' behavior.
  • For example, if the central bank wants to encourage banks to lend more money, it may lower the interest rate it pays on cash reserves, making it less attractive for banks to hold excess reserves.