Which of the following actions by the Fed most likely increase commercial bank lending?
A) raising the reserve ratio
B) increasing the federal funds rate target
C) reducing the interest paid on excess reserves held at the Fed
D) selling bonds to commercial banks and the public

Question

Quizplus · Accepted Answer

By reducing the interest paid on excess reserves held at the Fed, commercial banks are incentivized to lend out more of their excess reserves rather than holding them at the Fed. This can lead to an increase in commercial bank lending. A, B, and D would likely have the opposite effect, as they would either require banks to hold more reserves or reduce their ability to borrow from the Fed, causing them to be less willing to lend.

Which of the Following Actions by the Fed Most Likely