By May 2009, Bank Reserves in the U

Multiple Choice

By May 2009, bank reserves in the U.S.had soared to more than US$900 billion.Which of the following is not a reason partially explaining why banks were piling up excess reserves rather than lending funds out?

A) the U.S.Federal Reserve's decision to start paying interest of 0.25 percent on bank reserves held as deposits held at the Federal Reserve
B) the reduced demand for loans of households and firms who already faced damaged financial positions due to the recession
C) the reluctance of banks to make loans at low interest rates to households and firms with financial positions damaged by the recession
D) liquidity traps leaving the central bank unable to lower short-term interest rates further to spur on lending
E) the inability of the Federal Reserve to target a federal funds rate of -5 percent