Which of the following is NOT an argument for the Federal Reserve paying interest on excess reserve holdings?
A) Paying interest reduces the effective tax on deposits.
B) Paying interest will help in the implementation of monetary policy.
C) Paying interest will help the Federal Reserve have more control of the amount of discount loans.
D) Paying interest increases the capacity of the Fed's balance sheet which will make it easier to address financial crises.

Question

Quizplus · Accepted Answer

Paying interest on excess reserves would not affect the amount of discount loans issued by the Federal Reserve, so argument C is not valid. Arguments A, B, and D are legitimate reasons for paying interest on excess reserve holdings.

Which of the Following Is NOT an Argument for the Federal