The assumption that reserves are scarce
A) was accurate prior to the financial crisis of 2007-2009 but not following the crisis.
B) was accurate following the financial crisis of 2007-2009 but not prior to the crisis.
C) was accurate prior to and following the financial crisis of 2007-2009.
D) was not accurate prior to or following the financial crisis of 2007-2009.

Question

Quizplus · Accepted Answer

Prior to the financial crisis of 2007-2009, the assumption that reserves were scarce was accurate because banks operated within a framework where reserves were more limited. Following the crisis, central banks, particularly the Federal Reserve, implemented policies that significantly increased reserve balances, making them far less scarce.

The Assumption That Reserves Are Scarce