Statement I: If a bank has negative excess reserves,then its required reserves are greater than its actual reserves.
Statement II: If a bank has negative excess reserves,it generally eliminates them by borrowing money in the Federal Funds market.

Question

Quizplus · Accepted Answer

Statement I is true because excess reserves are calculated as actual reserves minus required reserves; if excess reserves are negative, it means that the bank's actual reserves are less than its required reserves. Statement II is also true because banks often borrow in the Federal Funds market to cover shortfalls in reserves, thereby eliminating negative excess reserves.

Statement I: If a Bank Has Negative Excess Reserves,then Its