For a bank to earn as much profit as possible, its excess reserves should be:

Question

Quizplus · Accepted Answer

Excess reserves are the reserves that banks hold above their required amount. These are not required by law but are held as a precautionary measure against unexpected withdrawals. However, excess reserves do not earn any interest and incur an opportunity cost to the bank. Therefore, to maximize profit, banks should aim to keep excess reserves as small as possible while still meeting their required reserve requirements. This means that the correct option is B - as small as possible.

For a Bank to Earn as Much Profit as Possible