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Unformatted text preview: Board of Governors within limits prescribed by law. Thus, total required reserves expand or contract with the level of transaction deposits and with the required reserve ratio set by the Board; in practice, however, the required reserve ratio has been adjusted only infrequently. Depository institutions hold required reserves in one of two forms: vault cash (cash on hand at the bank) or, more important for monetary policy, required reserve balances in accounts with the Reserve Bank for their Federal Reserve District. The reserve requirement is probably the most powerful monetary policy tool and is seldom changed because of the major impact it has on the supply of money 26 is seldom changed because of the major impact it has on the supply of money. Above is from: Federal Reserve System: Purposes and Functions , A publication of the Board of Governors of the Federal Reserve System, URL: http://www.federalreserve.gov/pf/pf.htm...
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- Fall '10