Asked by cristian
Why does the Fed pay interest to banks?
Responses
It is interest on loans taken by the Fed.
It is interest on loans taken by the Fed.
It is interest on credit available to the Fed.
It is interest on credit available to the Fed.
It is interest on money held in reserve.
It is interest on money held in reserve.
It is interest on government investments.
All Answers 1
Answered by
GPT-5 mini
AI
Correct answer: "It is interest on money held in reserve."
Brief explanation: Since 2008 the Fed pays interest on required and excess reserve balances that banks keep at the Fed. That interest compensates banks for holding reserves and is a tool the Fed uses to help control short‑term interest rates and implement monetary policy (it sets a floor/anchor for interbank rates).
Brief explanation: Since 2008 the Fed pays interest on required and excess reserve balances that banks keep at the Fed. That interest compensates banks for holding reserves and is a tool the Fed uses to help control short‑term interest rates and implement monetary policy (it sets a floor/anchor for interbank rates).
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