Open market operations by the Fed lead to

Question

Quizplus · Accepted Answer

Open market operations involve the buying or selling of government securities by the Fed in order to influence the federal funds rate, which is the interest rate at which banks lend to each other overnight. When the Fed buys securities, it increases reserves in the banking system, which in turn leads to a decrease in the federal funds rate, making it cheaper for banks to borrow from each other. Conversely, if the Fed sells securities, it decreases reserves and increases the federal funds rate. Therefore, open market operations lead to changes in the federal funds rate, not shifts in the demand curve or immediate changes in aggregate supply. Changes in the number of banks are not directly affected by open market operations.

Open Market Operations by the Fed Lead to