Asked by theresa betty on Jul 22, 2024
Verified
Prior to October 2008,commercial banks tended to hold relatively small amounts of excess reserves because
A) the presence of such reserves tends to boost interest rates and reduce investment.
B) the Fed constantly uses open market operations to eliminate excess reserves.
C) the Fed did not pay interest on reserves.
D) the Fed does not want commercial banks to be too liquiD.
Excess Reserves
The difference between actual reserves and required reserves.
Commercial Banks
Financial institutions that accept deposits, offer checking account services, and make various loans to businesses and individuals.
Open Market Operations
Central bank activities that buy and sell government securities in the open market to influence liquidity and interest rates.
- Discuss the consequences of Federal Reserve initiatives on the reserves of commercial banks and the overall volume of money in circulation.
Verified Answer
IŠ
Imrañ Š?ataratJul 26, 2024
Final Answer :
C
Explanation :
Commercial banks tended to hold relatively small amounts of excess reserves prior to October 2008 because the Fed did not pay interest on reserves. This means that holding excess reserves was not profitable for commercial banks as they did not earn any interest on these reserves.
Learning Objectives
- Discuss the consequences of Federal Reserve initiatives on the reserves of commercial banks and the overall volume of money in circulation.