If the Fed buys U.S. government securities,

Name: If the Fed buys U.S. government securities,
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Question

Quizplus · Accepted Answer

When the Fed buys U.S. government securities from banks, it increases the reserves of banks. With more reserves, banks have more funds to lend to other banks. This increase in the availability of funds reduces the federal funds rate, which is the interest rate at which banks lend excess reserves to each other overnight. Therefore, the correct answer is B - the federal funds rate will fall.

If the Fed Buys U.S. Government Securities