The Fed changes the federal funds rate by
A)directing banks to charge each other a new rate.
B)asking banks to charge each other a new rate.
C)asking Congress to make the change.
D)increasing or decreasing the supply of reserves in the overnight market.
E)directing banks to charge consumers a new rate.

Question

Quizplus · Accepted Answer

The Fed changes the federal funds rate by increasing or decreasing the supply of reserves in the overnight market. This is done through open market operations, whereby the Fed buys or sells securities to adjust the level of reserves in the banking system. A higher level of reserves will push down the federal funds rate, while a lower level of reserves will push it up.

The Fed Changes the Federal Funds Rate by