ECON 201 SEU Macroeconomics Reserve Ratios Discussion

Topic: The reserve ratio is the portion of reservable liabilities that commercial banks must hold onto, rather than lend out or invest.This rate is determined by the Country’s Central Bank.The Cash Reserve Ratio of select Middle Eastern Countries is given below:

• Bahrain (%) — 5.0 
• Oman (%) — 5.0
• Saudi Arabia (%) — 7.0
• United Arab Emirates (%) — 1.0

As can be seen, the cash reserve ratio of Saudi Arabia is the highest among the listed nations.

Q1:  “Discuss the implications of the 7% reserve rate on the Saudi economy, highlighting the advantages and disadvantages”.

Q2: reply to the following views Your replies need to be substantial and constructive in nature.

Reply 1:

• Madawi Almarri:
• Nora Asubay

COLLAPSE

The cash reserve ratio demonstrates the government’s commitment to maintain a strong financial policy inside the country. Increased the CRR, which indicates that more money may now be stored in the primary financial institution and less money is available to spend. Because demand has been targeted as a result of this coverage, inflation has been reduced on a regular basis.

PROS:

Assists in combating rising inflatio

Assists in price stabilisation

CONS:

Limit the amount of output

There may be more unemployment as a result of lower productivity.

Reply 2:

COLLAPSE

maintained by every bank as per the rules of the central bank The reserve ratio has to be

If the bank is maintaining the right reserve ratio , there’ll be lesser probabilities of illiquid funds and therefore the obligations will be completed efficiently. conjointly this boosts up the arrogance of public upon the industry and protects the banks from contingencies and honoring its customers

however , the worth of cash multiplier factor is reciprocally relating to the reserve ratio. If the reserve ratio will be higher , banks will have lesser money to lend to public. As a results of this , there’ll be lesser pecuniary resource in economy and therefore the level of AD will drop . this may cause lesser Real GD

Format:

• 700 words for Q1 ( and a minimum of 3 references)
• 400 words for each reply (2 replies, 1 reference min per each reply)