Why does the fed pay interest to banks?

a. it is interest on money held in reserve.
b. it is interest on credit available to the fed.
c. it is interest on loans taken by the fed.
d. it is interest on government investments.

Option (A). It is interest on money held in reserve.

Further Explanation-

Central Banks like the Federal Reserve are recommended to pay a certain rate of interest to depository institutions on which they have a certain amount of reserves that are required to be held against the deposit liabilities. The importance of this policy lies in the fact that the Federal Reserve holds around one trillion dollars in total reserves in these depository institutions. This was designed to broaden the scope of lending programs and address conditions in credit markets.  

The depository institutions are required to make certain statutory reserve requirements, which means a bank should hold reserves that equal to the amount it has in liabilities. The Fed expanded its balance sheet by buying Treasuries and mortgage-backed securities to ensure increased liquidity to the banking system. In the concept of banking, excess reserves are those reserves that are maintained in excess by banks against the total value of their liabilities. The Fed started paying interest on deposits only after the introduction of the Emergency Economic Stabilization Act of 2008. It is important to pay interest on reserves in order to avoid excessive money growth as a result of temporary injection of liquidity into the banking system. Depository institutions receive interest on reserves that they hold with the Fed.  

has introduced insurance programs.  

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Answer Details-

Grade- High School.

Chapter- The American Banking System.

Subject- Economics.

Additional Remarks- This chapter mentions in detail the banking policies, institutions, and tools in the United States.

Keywords-Liquidity, reserves, money flow, deposit liabilities, lending programs, credit markets, Emergency Economic Stabilization Act of 2008.

they were the direct result of some cultural difussion.

the correct answer is a) he thought the government’s military action was a mistake.

the whiskey rebellion was a tax protest in the us that started in 1791 and ended in 1974. it has this name because the whiskey tax was the first tax that was imposed on a domestic product by the new federal government.

jefferson was against the government’s military action because he believed that the purpose of the government was to protect the unalienable rights of its citizens and that these rights include life, liberty, and the pursuit of happiness and he thought that people had the constitutional right to rebel. he has said: “the first error was to pass it (the whiskey tax); the second was to enforce it; and the third, to make it the means of splitting this union.”

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