The higher the federal funds rate, the the opportunity cost of holding reserves, which
The incentive to economize on reserves.

Question

Quizplus · Accepted Answer

As the federal funds rate increases, the opportunity cost of holding reserves increases. This means that banks will be more incentivized to economize on reserves, as they are effectively losing money by holding onto them instead of lending them out or investing them elsewhere.

The Higher the Federal Funds Rate, the The Opportunity Cost