Because Depository Institutions Earn No Interest on Reserves

question 152

Multiple Choice

Because depository institutions earn no interest on reserves:

• A)profit maximizing behavior motivates them to retain excess reserves to the fullest extent consistent with their liquidity requirements; and when reserve requirements are low, this motivation is especially strong.
• B)profit maximizing behavior motivates them to lend out excess reserves to the fullest extent consistent with their liquidity requirements; and when interest rates are low, this motivation is especially strong.
• C)profit maximizing behavior motivates them to retain excess reserves to the fullest extent consistent with their liquidity requirements; and when interest rates are low, this motivation is especially strong.
• D)profit maximizing behavior motivates them to retain excess reserves to the fullest extent consistent with their liquidity requirements; and when interest rates are high, this motivation is especially strong.
• E)none of the above

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