When the Fed lowers the federal funds rate, it increases reserves and increases the quantity of deposits and loans created.

Question

Quizplus · Accepted Answer

When the Federal Reserve lowers the federal funds rate, it typically does so by purchasing securities in the open market, which increases the reserves of the banking system. This increase in reserves allows banks to create more deposits through lending, effectively increasing the quantity of deposits and loans in the economy.

When the Fed Lowers the Federal Funds Rate, It Increases