::: vuaskari.com ::: MGT411 GDB

Because of the potential for hyperinflation, the Federal Reserve uses reserve requirements to limit 

the growth of the money supply. If the Board of Governors sees inflation as a serious economic 

problem, the reserve requirement can be increased to further limit the ability of banks to make 

loans and create money. The Fed can also reduce the reserve requirement, to make more money 

available to stimulate the economy during a recession. While some factors limit its effectiveness, 

the reserve requirement remains a very powerful tool of the Federal Reserve Although its 

effectiveness may be limited by several factors, the reserve requirement remains the most 

powerful single tool in the Federal Reserve's arsenal to combat economic instability. More 

importantly, the reserve requirement stands as one important protection against the hyperinflation 

that has seriously crippled economies around the world.


Thanks & Regards

Syed Brothers

MBA Multi Semester Fall 2010

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