An indication to the Open Market Account Manager that commercial banks are experiencing a liquidity shortage would be a
A) falling federal funds rate.
B) rising federal funds rate.
C) falling discount rate.
D) rising discount rate.

Question

Quizplus · Accepted Answer

A rising federal funds rate indicates that commercial banks are facing a liquidity shortage and are borrowing more from each other, pushing up the interest rate. This would prompt the Open Market Account Manager to inject more funds into the market to ease the shortage. A falling federal funds rate, falling discount rate, or rising discount rate would not necessarily indicate a liquidity shortage in the commercial banking sector.

An Indication to the Open Market Account Manager That Commercial