In the market for bank reserves, if the federal funds rate target is higher than the federal funds rate, the Fed will take action to reserves.

Question

Quizplus · Accepted Answer

If the federal funds rate target is higher than the federal funds rate, it means that banks are holding excess reserves and not lending enough in the interbank market to meet the target rate. To bring the rate up to the target, the Fed will decrease the supply of reserves by selling securities or raising the discount rate. This makes it harder for banks to meet their reserve requirements and encourages them to borrow from each other at a higher rate, pushing up the federal funds rate.

In the Market for Bank Reserves, If the Federal Funds