If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold
A)fewer reserves, so the reserve ratio will fall.
B)fewer reserves, so the reserve ratio will rise.
C)more reserves, so the reserve ratio will fall.
D)more reserves, so the reserve ratio will rise.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the interest rate on bank deposits at the Fed, banks are incentivized to hold more reserves to earn that higher interest, which increases the reserve ratio.

If the Federal Reserve Increases the Interest Rate on Bank