Tends to encourage banks to hold reserves

Reference no: EM133706794

Question: The interest rate on reserves is the interest rate that the Fed pays banks for holding reserves on deposit at the Fed. For many years, open market operations were the Fed's primary tool for monetary policy. However, since October 2008, it relies more on interest on reserves. An increase in the interest rate on reserves tends to encourage banks to hold reserves.

Reference no: EM133706794

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