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:

Budget

A projection of revenues and expenses for a specified timeframe.

Total Utility

The total satisfaction or benefit received by consuming a particular amount of a good or service.

Income

Financial returns, mainly recurring, as compensation for work or investment income.

Technological Advance

The introduction of new technologies or the improvement of existing technologies, leading to better products, services, or ways of doing things.