If the Fed wants to lower the federal funds rate, it can

Question

Quizplus · Accepted Answer

When the Fed buys government securities on the open market, it increases the money supply in the economy, which lowers the federal funds rate. Decreasing the budget deficit (A) may have some impact on interest rates, but it is not a direct tool of the Fed. Selling government securities (B) would have the opposite effect of what the Fed wants, as it would decrease the money supply and raise interest rates. Instructing banks to print more money (D) is not a viable option for the Fed, as banks do not have the authority to create money on their own.

If the Fed Wants to Lower the Federal Funds Rate