Whenever a bankʹs actual reserves exceed its desired reserves, the bank
A) needs to call in loans.
B) can lend out additional funds.
C) must increase the amount of its required reserves by obtaining more cash.
D) will go out of business.

Question

Quizplus · Accepted Answer

When a bank's actual reserves exceed its desired reserves, it has excess reserves which can be lent out to borrowers. This is how banks create money and earn profits through interest on loans. Option A is incorrect because calling in loans reduces reserves, which is the opposite of the situation described. Option C is incorrect because increasing the amount of required reserves would not address the excess reserves already held by the bank. Option D is extreme and unlikely, as having excess reserves is generally a positive situation for a bank.

Whenever a Bankʹs Actual Reserves Exceed Its Desired Reserves, the Bank