If the Fed increases the supply of bank reserves,________.
A) the federal funds rate falls
B) the inflation rate falls
C) consumption falls
D) investment falls

Question

Quizplus · Accepted Answer

When the Fed increases the supply of bank reserves, there is an increase in the supply of funds available for lending. With more funds available, banks will be willing to lend at a lower rate, leading to a fall in the federal funds rate. This is because banks have excess reserves, and they can afford to lend out more money at lower interest rates. As a result, consumers and businesses can borrow more money at a lower interest rate, which can stimulate spending and investment. However, there is no direct impact on the inflation rate, consumption, or investments.

If the Fed Increases the Supply of Bank Reserves,________