Asked by Winifred Akabogu on Jun 29, 2024
Verified
To prevent shortages of cash during a crisis,the Fed:
A) saves up cash in bank vaults around the country and the world.
B) reduces liquidity in the economy so that more cash can be saved.
C) sells U.S.government securities to commercial banks.
D) demands interest payments on reserves held at the Fed.
E) increases the discount rate.
Cash Shortages
A situation where there is not enough cash available to meet demands.
Bank Vaults
Highly secured rooms or compartments in banks used for storing valuable items, including money, documents, and safe deposit boxes.
Economic Liquidity
The ease with which an asset can be converted into cash without affecting its market price.
- Gain an understanding of the motives prompting policy decisions by central banks amidst financial downturns and their initial influences on the economic framework.
Verified Answer
BS
Bhawardeep SinghJun 29, 2024
Final Answer :
A
Explanation :
The Fed saves up cash in bank vaults around the country and the world to prevent shortages of cash during a crisis. This ensures that there is enough physical cash available in case there is a run on banks or a loss of confidence in electronic payment systems. This strategy is also known as increasing the Fed's currency stockpile.
Learning Objectives
- Gain an understanding of the motives prompting policy decisions by central banks amidst financial downturns and their initial influences on the economic framework.