If the Fed's Actions Cause a Bank's Reserves to Increase

question 58

Multiple Choice

If the Fed's actions cause a bank's reserves to increase, we know the bank will have an incentive to convert the new reserves into loans and bonds because

• A)of government regulation.
• B)reserves are taxed by the federal government.
• C)of moral suasion.
• D)reserves don't earn interest.
• E)the Fed will take the reserves back if they are not used.

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Definitions:

Assets

Economic resources or valuable items owned by an individual or business, expected to generate positive economic value.

Expenses

Outflows or other uses of assets or incurring of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations.

Earning Revenue

The process of generating income from business activities over a period, typically from the sale of goods and services.

Net Income

The profit of a company after all expenses, including taxes and costs, have been deducted from total revenue.