ʺAs the Fed Chases Inflation, Critics Shout, ʹFaster!ʹ
ʺFor weeks, the Fed has broadcast its intention to raise interest rates glacially.ʺ The Fed was moving slowly, according to an economist because ʺ... the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check.ʺ The Fed, recognizing that the economy was improving stated it planned to ʺrespond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.ʺ Other economists disagree with the Fedʹs restrained policy as a ʺmistake.ʺ
Www.nytimes, 7/1/2004
By increasing the federal funds target, the Fed will___________ reserves and __________the quantity of money.

Question

Quizplus · Accepted Answer

Increasing the federal funds target rate typically leads to a decrease in reserves and a decrease in the quantity of money, as it makes borrowing more expensive, reducing the money supply.