When the Fed Makes Higher Interest Payments on Bank Reserves

question 46

Multiple Choice

When the Fed makes higher interest payments on bank reserves, banks will hold ________ reserves which will ________ the money supply.

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

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Definitions:

Perfectly Elastic

A situation in demand where consumers will buy an infinite quantity of goods at a certain price but none if the price increases even slightly.

Perfectly Inelastic

A demand situation where the quantity demanded does not change regardless of the price level.

Excise Tax

is a tax directly levied on certain goods, services, or activities, often with the intent to reduce their consumption or generate revenue.

Market Price

The current price at which a good or service can be bought or sold in a given market, reflecting supply and demand dynamics.