Question

Which of the following is true about excess reserves?

Select all that apply:

• By choosing to hold more of their deposits as excess reserves instead of lending the money out, banks may reduce the effectiveness of monetary policy.

• By choosing to hold more of their deposits as excess reserves instead of lending the money out, banks can help the Fed implement monetary policy more easily.

• Excess reserves are the reserves that banks choose to hold in addition to the legally required level of reserves.

• Excess reserves are the total reserves that banks hold at any given point in time.

Answer 1

Option C.

• Excess reserves refers to the additional reserves that a bank chooses to hold beyond the required level of reserve's.
• These excess reserves are usually held by the commercial banks and thus they are termed as excess credit reserves.
• The amount of extra reserves that any commercial bank can hold is set by the federal reserve or the central bank.