If Joshua deposits $5,000 into his checking account and the required reserve requirement ratio is 20%, how much money must the financial institution hold back in reserves:

a. $1,500

b. $2,000

c. $500

d. $1000

The answer is d. $10,00

A reserve requirement ratio is a tool in the hands of the central bank of the government to control the money flow in the economy.

The financial institutions have to keep the required reserve requirement ratio of deposits by customers with the central bank.

The reserves to be held back by the financial institution is calculated below.

Reserves requirement = deposit in checking account * reserve requirement ratio
=$5,000 * 20%
=$1,000