If the Fed's actions cause a bank's reserves to increase, we know the bank will have an incentive to convert the new reserves into loans and bonds because
A)of government regulation.
B)reserves are taxed by the federal government.
C)of moral suasion.
D)reserves don't earn interest.
E)the Fed will take the reserves back if they are not used.

Question

Quizplus · Accepted Answer

Reserves don't earn interest, so banks have an incentive to convert excess reserves into loans and bonds to earn interest income.

If the Fed's Actions Cause a Bank's Reserves to Increase