The neutrality of money refers to the idea that:   a) a change in money supply has no impact on output over any time        period.   b) a change in money supply has no short run impact on output.   c) the real quantity of money is constant in the long term.   2.  a) only the central bank can create money.  b) commercial banks can create credit.  c) all UK currency is backed by central bank holdings of gold.   3.  a) UK currency is a commercial bank liability.  b) UK currency is a Bank of England liability.  c) UK currency is a central bank asset.

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Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.