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M ail - Wmsu Gintrare & Overi muo: Semail - Ceng C 9.LiQu mud: S Anno mue Juser/attempt/quiz_start_frame_auto.d2l?u=1035145&isprva@drc=18qi495298&cfql=0&db=0 Benef. The Best Font Size. I englisho 1050 rese english 10502 Ⓡ The Psychology of Frontiers | Flow and for 18 March 2020 Abhi Kasipuram: Attempt 1 Question 1 (0.4 points) As of Sunday, March 15 the Fed reduced the required reserve ratio for banks to zero. If banks earn no interest on reserves, why would they continue to hold any? Please choose all that apply. Banks need reserves in order to cover withdrawals. Every bank loan must be matched by an equal amount of reserves. Banks do not see enough good opportunities to make loans at positive interest rates. Holding reserves is good protection against inflation. Question 2 (0.4 points) FRED

Answer 1

Banks hold reserve to cover the amount of withdrawals. It also may happen that banks don't think that there are good enough opportunities to park their funds, and thus they can keep the amount as reserve i.e, they don't loan it out.

However, it's not true that every bank loan must be matched by an equal amount of reserves. Holding reserves don't serve any purpose of safeguarding against inflation as the value of idle money which is lying with bank depreciates with inflation.

Therefore, Option 1 and 3 are correct.