Banks Have an Incentive to Minimize Their Excess Reserves Since

question 13

Multiple Choice

Banks have an incentive to minimize their excess reserves since

• A)they earn only a very low interest rate on the reserves they hold at the Fed
• B)larger reserves mean less liquidity
• C)deposits are bank assets while reserves are not
• D)the higher the reserve-deposit ratio, the weaker the bank's financial position
• E)it makes banks less vulnerable in case there is a run on banks

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Definitions:

Forcing Function

An external factor or input that compels a system to change its state or behavior, often used in mathematical modeling and simulations.

PLC

Stands for Programmable Logic Controller, a digital computer used for automation of industrial processes, such as control of machinery on factory assembly lines.

External Input

Any input signal or data received from an outside source, device, or system, which is used to influence operations or responses within a system.

Latch

An electronic circuit or mechanism that retains its output state until a specific input signal is received.