In 2014, the federal funds rate was 0.15 percent, which means that the opportunity cost of holding reserves was ________ and consequently banks had a ________ incentive to economize on reserves.

Question

Quizplus · Accepted Answer

A low federal funds rate means that the opportunity cost of holding reserves is low, which reduces the incentive for banks to economize on reserves. Therefore, banks would have a small incentive to economize on reserves.

In 2014, the Federal Funds Rate Was 0