Reserve requirements effectively impose a tax on bank deposits that reduce profits. Why does this tax...

Reserve requirements effectively impose a tax on bank deposits that reduce profits. Why does this tax increase as interest rates rise?

	A.	States tend to increase franchise fees on banks as interest rates rise
	B.	As interest rates rise, banks could earn more money by lending reserves to borrowers. These profits are limited by the reserve requirement, and the foregone profits increase as the interest rate rises.
	C.	The Fed always increases the reserve requirement as interest rates rise
	D.	Banks earn more money as interest rates increase, so their state and federal income taxes increase.

Expert Solution

Rahul Sunny answered 8 months ago

Why does the Federal Reserve impose capital requirements on commercial banks?

A tax levied on a business will a. reduce the profits of owners. b. reduce the...

A tax levied on a business will a. reduce the profits of owners. b. reduce the wages of workers. c. increase the prices paid by consumers. d. result in any or all of the above actions depending upon the market conditions the firm faces.

Why did China Reduce Reserve Requirements in 2014? How did they expect Consumers and Businesses to...

Why did China Reduce Reserve Requirements in 2014? How did they expect Consumers and Businesses to Respond?

Bank regulators impose capital requirements in order to a. increase the amount of leverage in the...

Bank regulators impose capital requirements in order to a. increase the amount of leverage in the economy. b. provide an incentive for banks to hold risky assets. c. ensure banks can pay off depositors. d. increase the probability of a credit crunch. To decrease the money supply, the Fed can a. buy government bonds or increase the discount rate. b. buy government bonds or decrease the discount rate. c. sell government bonds or increase the discount rate. d. sell...

Suppose a bank has $1 million in deposits, a reserve requirement of 10%, and bank reserves...

Suppose a bank has $1 million in deposits, a reserve requirement of 10%, and bank reserves of $300,000. The bank has excess reserves of: Question 16 options: a) $200,000. b) $100,000. c) $300,000. d) $50,000. f the economy is producing at an output level below full employment, the government should __ spending and __ taxes. Question 9 options: a) increase; decrease b) decrease; decrease c) decrease; increase d) increase; increase The following diagram represents the economy experiencing inflation at point...

1) Bank A has an increase in deposits of $10 million dollars and all bank reserve...

1) Bank A has an increase in deposits of $10 million dollars and all bank reserve requirements are 20 percent. Explain how much would total money supply increase. What is the relationship between reserve requirement ratio and the money supply? 2) What is the Federal Reserve System? Why does it exists? What are the two objectives of the Federal Reserve? Explain how the objectives are achieved.

Why would it be insufficient to impose an estate tax without a gift tax?

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will...

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold Select one: a. fewer reserves, so the reserve ratio will rise. b. more reserves, so the reserve ratio will rise. c. fewer reserves, so the reserve ratio will fall. d. more reserves, so the reserve ratio will fall.

2. Assume that Susan deposits $3000 of cash into bank A and the reserve requirement is...

2. Assume that Susan deposits $3000 of cash into bank A and the reserve requirement is 10%. a. Complete a simple T-account for bank A showing this deposit and asume that bank A lends out its excess reserves to Bill. b. Bill uses the entire loan to buy groceries at Rouses Supermarket and Rouses deposits it in bank B. Suppose bank B lends out all its excess reserves to Maria, and her loan ends up in bank C. Fill in...

What are reserve requirements? What happens to the money supply when the Fed raises reserve requirements? Why...

What are reserve requirements? What happens to the money supply when the Fed raises reserve requirements? Why don’t banks hold 100% reserves? How is the amount of reserves banks hold related to the amount of money the banking system creates?

Question