Advanced Placement (AP)

Pranav Livingston

15 February, 08:46

After the 2008 recession, the amount of reserves in the US banking system increased. Because of Federal Reserve actions, required reserves increased from $44 billion to $60 billion. However, banks started holding more reserves than required. By January 2009, banks were holding $900 billion in excess reserves. The Federal Reserve started paying interest on the excess reserves that the banks held. What possible impact will these unused reserves have on the economy?

A). The interest rate on loans will fall.

B). People will demand more foreign goods.

C). People will start borrowing more money.

D). The economy will face inflation.

E). Foreign investments will increase.