If the Federal Reserve Is Currently Paying 1% Interest on Bank

question 17

Multiple Choice

If the Federal Reserve is currently paying 1% interest on bank reserves, but then reduces that interest rate to 0.5%, banks may decide to hold ______ reserves, and the money supply may _____.

• A)more; increase
• B)more; decrease
• C)fewer; increase
• D)fewer; decrease

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Definitions:

Interpret

To explain the meaning of information or data, often by drawing inferences or conclusions.

Financial Planning

The process of creating strategies for managing a person's or organization's financial affairs to meet life goals.

Contingency Plans

Strategies developed by businesses or governments to help them respond to unexpected events or emergencies.

Investment Options

Various financial instruments or vehicles in which individuals or entities can place capital in expectation of future financial returns.