Question

Because BSB is cutting back on its loans, other banks will find they have too reserves, causing them to their loans.

BSB may find it difficult to cut back on its loans immediately because it cannot force people to pay off loans.
Which of the following ways represent an alternative for BSB to return to its original reserve ratio? Check all that apply.
A) Lend money
B) Attract additional deposits
C) Borrow money from another bank
D) Borrow money from the Fed

Answer 1

The correct answers are

A) Attract additional deposits - this deposits can be used to increase the reserves

B) Borrow money from another bank - BSB will have to pay interest, but these money can be used to increase the reserves.

C) Borrow money from the FED - cheaper than borrowing from another bank, the same logic applies: it can use the money borrowed to increase its amount of reserves