To minimize the cost of holding reserves for small banks, the:

Question

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The first few million of transaction deposits are exempt from reserve requirements under a policy known as the "free reserves" policy. This helps to minimize the cost of holding reserves for smaller banks. Option A is incorrect because the required reserve rate is generally constant, regardless of the amount of deposits. Option B is incorrect for the same reason. Option C is incorrect because there is no such policy that exempts certain transaction deposits from reserve requirements based on their size.

To Minimize the Cost of Holding Reserves for Small Banks