Open market operations by the Fed lead to
A) immediate changes in aggregate supply.
B) shifts in the demand curve for reserves.
C) changes in the federal funds rate.
D) changes in the number of banks.

Question

Quizplus · Accepted Answer

Open market operations by the Fed involve buying or selling government securities with member banks in order to influence the amount of reserves in the banking system. These actions will affect the federal funds rate, which is the interest rate that banks charge each other for overnight lending. Therefore, the correct answer is C, as open market operations lead to changes in the federal funds rate.

Open Market Operations by the Fed Lead to