Because depository institutions earn no interest on reserves:
A)profit maximizing behavior motivates them to lend out excess reserves to the fullest extent consistent with their liquidity requirements; and when interest rates are high, this motivation is especially strong.
B)profit maximizing behavior motivates them to lend out excess reserves to the fullest extent consistent with their liquidity requirements; and when interest rates are low, this motivation is especially strong.
C)profit maximizing behavior motivates them to retain excess reserves to the fullest extent consistent with their liquidity requirements; and when interest rates are low, this motivation is especially strong.
D)profit maximizing behavior motivates them to retain excess reserves to the fullest extent consistent with their liquidity requirements; and when interest rates are high, this motivation is especially strong.
E)none of the above

Question

Quizplus · Accepted Answer

Depository institutions aim to maximize profits by lending out excess reserves, especially when interest rates are high, as they can earn more from loans than holding non-interest-bearing reserves.

Because Depository Institutions Earn No Interest on Reserves