Why Do Banks Want to Minimize Their Holdings of Excess

question 70

Multiple Choice

Why do banks want to minimize their holdings of excess reserves?  

• A) because excess bank reserves earn no interest 
• B) because desired bank reserves will also be minimized 
• C) because the money multiplier will be larger, thus leading to a greater money supply 
• D) because banks want to borrow more on the overnight money market

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Definitions:

Profits

The financial gain obtained when the revenue earned from business activities exceeds the expenses, costs, and taxes needed to sustain the activity.

Jeweler

A person or business that designs, makes, sells, or repairs jewelry.

Clothing Store

A retail establishment that sells garments and apparel for men, women, and children.

Utility

Utility refers to the total satisfaction received from consuming a particular good or service.