Because Depository Institutions Earn No Interest on Reserves

Multiple Choice

Because depository institutions earn no interest on reserves:

A) profit maximizing behavior motivates them to retain excess reserves to the fullest extent consistent with their liquidity requirements; and when reserve requirements are low, this motivation is especially strong.
B) profit maximizing behavior motivates them to lend out excess reserves to the fullest extent consistent with their liquidity requirements; and when interest rates are low, this motivation is especially strong.
C) profit maximizing behavior motivates them to retain excess reserves to the fullest extent consistent with their liquidity requirements; and when interest rates are low, this motivation is especially strong.
D) profit maximizing behavior motivates them to retain excess reserves to the fullest extent consistent with their liquidity requirements; and when interest rates are high, this motivation is especially strong.
E) none of the above