If a bank does not have enough reserves,it can:
A) Buy bonds on the open market.
B) Raise the interest rate it charges borrowers.
C) Borrow reserves from the discount window.
D) Make more loans.

Question

Quizplus · Accepted Answer

If a bank does not have enough reserves, it can borrow reserves from the discount window. This is a common practice for banks when they are short on funds to meet their reserve requirements. Buying bonds on the open market could potentially tie up liquidity and not be an immediate solution. Raising interest rates may discourage borrowing and slow down economic growth. Making more loans will only exacerbate the reserve shortage. Therefore, borrowing from the discount window is the best choice.

If a Bank Does Not Have Enough Reserves,it Can