Statement I: Banks try to carry large excess reserves.
Statement II: Actual reserves minus excess reserves = required reserves.

Question

Quizplus · Accepted Answer

Banks try to carry excess reserves to manage their liquidity and to have adequate funds available to meet unexpected withdrawals or obligations. Actual reserves minus excess reserves equals the required reserves, which is the minimum amount of reserves that a bank must hold to meet regulatory requirements. This statement is true. However, statement I is false because banks try to minimize excess reserves to avoid the opportunity cost of holding idle funds.

Statement I: Banks Try to Carry Large Excess Reserves