If Banks Are Currently Holding Zero Excess Reserves and the Fed

question 67

Multiple Choice

If banks are currently holding zero excess reserves and the Fed lowers the required reserve ratio,which of the following will happen?

• A) Banks will have a reserve deficiency.
• B) Banks will have positive excess reserves.
• C) Banks will extend fewer loans.
• D) Banks will call in some of their loans to meet the reserve deficiency.

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Definitions:

Drought

An extended period of deficient precipitation resulting in water scarcity that affects ecosystems, agriculture, and water supply.

Water Reserves

Stored or available water in natural or artificial reservoirs that can be used for various purposes.

Reciprocity Norm

The reciprocity norm is a social norm that expects individuals to respond to each other in kind, returning benefits for benefits received.

Favor

An act of kindness beyond what is usual or expected, often involving giving someone an advantage or showing support.