Recall the Application about the Fed increasing bank reserves during the financial crisis in 2008 to answer the following question(s). During the height of the financial crisis in September 2008, The Fed injected large amounts of reserves into banks, and in the next month, they started paying interest to banks on these reserves. Prior to this time, banks earned no interest on either required or excess reserves.
-According to the Application, the Fed started paying interest to banks on reserves. Since this change has occurred,
A) total reserves now far exceed required reserves.
B) total reserves are finally equal to required reserves.
C) all total reserves are now excess reserves.
D) required reserves now exceed total reserves.

Question

Quizplus · Accepted Answer

The fact that the Fed started paying interest to banks on reserves suggests that banks now have excess reserves (i.e., reserves that are above the required reserve amount). Therefore, total reserves now far exceed required reserves.

Recall the Application About the Fed Increasing Bank Reserves During