There is a positive relationship between the quantity of reserves supplied and the federal funds rate.

Question

Quizplus · Accepted Answer

When the quantity of reserves supplied increases, there will be more funds available for banks to lend to other banks in the federal funds market. This increase in supply of funds will put downward pressure on the federal funds rate, causing it to decrease. On the other hand, if the quantity of reserves supplied decreases, there will be fewer funds available for banks to lend, causing upward pressure on the federal funds rate, causing it to increase. Therefore, there is a positive relationship between the quantity of reserves supplied and the federal funds rate.

There Is a Positive Relationship Between the Quantity of Reserves