If the Fed reduces the interest paid on banks' reserves, it is trying to make banks hold
A) more excess reserves.
B) less excess reserves.
C) more required reserves.
D) less required reserves.

Question

Quizplus · Accepted Answer

By reducing the interest paid on banks' reserves, the Fed is trying to make it less attractive for banks to hold excess reserves, encouraging them to lend out more money and decrease the amount of excess reserves they hold. Therefore, the correct choice is B, which reflects a decrease in banks' excess reserves.

If the Fed Reduces the Interest Paid on Banks' Reserves