Reserves that the Fed injects into the banking system are ultimately

Question

Quizplus · Accepted Answer

When the Fed injects reserves into the banking system, they are typically distributed among different banks in the system as required reserves. This helps to increase the availability of funds that banks can lend out to businesses and consumers, thereby increasing the money supply in the economy. While banks may use these reserves to make loans to other banks, they are not necessarily converted solely to interbank loans, as banks also make loans to households and firms. Therefore, choice A is not the best option. Choice C is also inaccurate, as reserves are typically spread out among many banks rather than concentrated in just two or three. Choice D is incorrect, as injecting reserves is an effective way to increase the money supply, albeit indirectly. Choice E is irrelevant to the question.

Reserves That the Fed Injects into the Banking System Are