In the market for reserves,if the federal funds rate is between the discount rate and the interest rate paid on excess reserves,a decline in the reserve requirement ________ the demand of reserves,________ the federal funds rate,everything else held constant.

Question

Quizplus · Accepted Answer

If the reserve requirement decreases, banks have to hold less reserves, decreasing the demand for reserves in the market. With a lower demand for reserves, the federal funds rate will be lowered to maintain equilibrium in the market for reserves. Therefore, the correct answer is A) decreases and lowering.

In the Market for Reserves,if the Federal Funds Rate Is