If the Fed injects additional reserves into the banking system, why will banks generally want to expand their loans and investments?
A) Banks are legally required to expand loans when the Fed creates excess reserves.
B) Maintaining reserves in excess of demand deposits is against the law.
C) Banks fear the Fed will remove the excess reserves.
D) Loans and investments generally earn more interest income for the banks than excess reserves.

Question

Quizplus · Accepted Answer

Banks generally want to expand their loans and investments because loans and investments generally earn more interest income for the banks than excess reserves. Therefore, banks want to put excess reserves to work by lending or investing them to earn more income.

If the Fed Injects Additional Reserves into the Banking System