Banks try to keep their level of excess reserves low because
A)the Fed charges a penalty for holdings of excess reserves.
B)they are concerned that the money multiplier will become too large.
C)they wish to maximize profits.
D)bank regulators levy fines on the amount of excess reserves.

Question

Quizplus · Accepted Answer

Banks aim to keep excess reserves low primarily to maximize profits, as funds held as excess reserves earn lower returns than if they were used for lending or other investments.

Banks Try to Keep Their Level of Excess Reserves Low