Banks would be expected to:
A) minimize holding excess reserves because the practice of holding more than the required reserves is illegal.
B) minimize holding excess reserves because the practice of holding more than the required reserves is not profitable.
C) maximize holding excess reserves because the practice of holding more than the required reserves increases the assets of the bank.
D) maximize holding excess reserves because the practice of holding more than the required reserves reduces the tax paid by the bank to the Federal Reserve.

Question

Quizplus · Accepted Answer

Banks would prefer to minimize holding excess reserves because the practice of holding more than the required reserves is not profitable. Excess reserves earn no interest and banks could use those funds for more profitable activities. Therefore, banks would try to manage their reserves efficiently by holding only required reserves while meeting the demand for cash withdrawals from their customers.

Banks Would Be Expected To