How can the Fed reduce the implicit tax on banks resulting from reserve requirements?
A) lowering the discount rate
B) paying interest on reserves
C) reducing the federal funds rate
D) increasing the federal funds rate

Question

Quizplus · Accepted Answer

Paying interest on reserves would provide banks with a return on their required reserves, effectively reducing the implicit tax on banks resulting from reserve requirements. Lowering or increasing the discount rate or reducing the federal funds rate would not directly address the implicit tax on banks resulting from reserve requirements.

How Can the Fed Reduce the Implicit Tax on Banks