Recall the Application About the Fed Increasing Bank Reserves During

question 148

Multiple Choice

Recall the Application about the Fed increasing bank reserves during the financial crisis in 2008 to answer the following question(s) . During the height of the financial crisis in September 2008, The Fed injected large amounts of reserves into banks, and in the next month, they started paying interest to banks on these reserves. Prior to this time, banks earned no interest on either required or excess reserves.
-According to this Application, the Fed started paying interest to banks on reserves. All else equal, this would tend to ________ on a bank's balance sheet.

• A) increase loans
• B) increase deposits
• C) increase reserves
• D) all of the above

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Definitions:

World Price

The international market price of a good or service, determined by global supply and demand.

Domestic Supply

The total amount of a product or service that is available for consumption or use within a domestic market.

Trade Restrictions

Regulations imposed by governments to limit the free exchange of goods and services across borders, including tariffs, quotas, and embargoes.

Specific Tariff

A specific tariff is a fixed fee imposed by a government on each unit of imported goods, based on quantity rather than value.