If the level of excess reserves in the banking system drops suddenly, we might expect that the:

Question

Quizplus · Accepted Answer

When excess reserves in the banking system drop suddenly, banks have less liquidity available for lending, which increases the demand for overnight loans in the federal funds market. This increased demand for funds typically leads to a rise in the federal funds rate, as banks are willing to pay more to borrow reserves to meet their requirements.

If the Level of Excess Reserves in the Banking System