If the federal funds rate is above the equilibrium federal funds rate, then the supply of reserves would be __________ than the demand for reserves and the banks would try to __________ reserves causing the federal funds rate to fall.

Question

Quizplus · Accepted Answer

When the federal funds rate is above the equilibrium rate, it indicates that the supply of reserves in the banking system is greater than the demand for those reserves. Banks, having excess reserves, would try to lend these reserves out, which increases the supply of available funds and puts downward pressure on the federal funds rate, causing it to fall towards equilibrium.

If the Federal Funds Rate Is Above the Equilibrium Federal