The Fed can increase the federal funds rate by
A) selling government securities which increases bank reserves.
B) selling government securities which decreases bank reserves.
C) buying government securities which increases bank reserves.
D) buying government securities which decreases bank reserves.

Question

Quizplus · Accepted Answer

Selling government securities decreases bank reserves, which makes it more expensive for banks to borrow from each other and thus increases the federal funds rate. Buying government securities increases bank reserves and makes it cheaper for banks to borrow, which would decrease the federal funds rate.

The Fed Can Increase the Federal Funds Rate by