The opportunity cost of holding excess reserves is the federal funds rate

Name: The opportunity cost of holding excess reserves is the federal funds rate
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Question

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The opportunity cost of holding excess reserves is the federal funds rate minus the interest rate paid on excess reserves. This is because the opportunity cost is what a bank forgoes by holding excess reserves instead of lending them out at the federal funds rate. The interest paid on excess reserves reduces this cost.

The Opportunity Cost of Holding Excess Reserves Is the Federal