If the Fed wants to increase the federal funds rate through open market operations,it will ________.
A) sell bonds
B) buy bonds
C) increase the quantity of required reserves
D) decrease the interest rate paid on borrowed reserves held at the Fed

Question

Quizplus · Accepted Answer

If the Fed wants to increase the federal funds rate, it will sell bonds in open market operations. When the Fed sells bonds, it decreases the amount of reserves in the banking system, which in turn makes it harder for banks to lend money to each other. This increases the federal funds rate, the interest rate at which banks lend reserves to each other overnight.

If the Fed Wants to Increase the Federal Funds Rate