If the Fed Injects Additional Reserves into the Banking System

question 127

Multiple Choice

If the Fed injects additional reserves into the banking system, why will banks generally want to expand their loans and investments?

• A) Banks are legally required to expand loans when the Fed creates excess reserves.
• B) Maintaining reserves in excess of demand deposits is against the law.
• C) Banks fear the Fed will remove the excess reserves.
• D) Loans and investments generally earn more interest income for the banks than excess reserves.

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Definitions:

Diagnosis-Related Groups

A system of classifying hospital cases into groups to facilitate payment based on the costs associated with the typical patient in each group.

Prospective Pricing

A pricing approach where the price for services, especially in healthcare, is determined in advance based on expected costs.

Provider's Coding

The process by which healthcare providers specify diagnostic and treatment codes for patient care, used for billing and record-keeping purposes.

Retrospective Payment

is a method of payment in which charges are based on actual costs incurred, typically analyzed and paid after the service has been provided.