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QUESTION:
The interest rate on reserves is the interest rate that the Fed pays banks for holding reserves on deposit at the Fed. For many years, open market operations were the Fed’s primary tool for monetary policy. However, since October 2008, it relies more on interest on reserves.
A decrease in the interest rate on reserves tends to encourage banks to hold reserves.
ANSWER:
The interest rate on reserves is the interest rate that the Fed pays banks for holding reserves on deposit at the Fed. For many years, open market operations were the Fed’s primary tool for monetary policy. However, since October 2008, it relies more on interest on reserves.
A decrease in the interest rate on reserves tends to encourage banks to holdless reserves.
Points:
1 / 1
Close Explanation
Explanation:
Interest on reserves is the Fed's primary tool for influencing the money supply. A decrease in the interest rate on reserves tends to encourage banks to hold less reserves.
reserves.