In order for a bank to earn as much profit as possible, its excess reserves should be:
A) equal to its required reserves.
B) as small as possible.
C) less than its vault cash.
D) growing at a constant rate.

Question

Quizplus · Accepted Answer

Excess reserves earn no interest, so a bank would want to keep them as small as possible in order to maximize profits. If excess reserves were equal to required reserves (A) or less than vault cash (C), the bank could be at risk of not having enough funds to meet the demands of its customers. The rate at which excess reserves grow (D) is not as important as minimizing their size.

In Order for a Bank to Earn as Much Profit