The federal funds rate and the quantity demanded of reserves have a(n)____________ relationship.This is because as the federal funds rate moves down,it becomes _______________ for banks to hold reserves,encouraging banks to hold ____________ in reserves to guard against checkable deposit withdrawals.
A) inverse; more expensive; more
B) direct; more expensive; less
C) inverse; cheaper; more
D) direct; cheaper; more

Question

Quizplus · Accepted Answer

The federal funds rate and the quantity demanded of reserves have an inverse relationship because as the federal funds rate moves down, it becomes cheaper for banks to hold reserves, encouraging banks to hold more in reserves to guard against checkable deposit withdrawals.

The Federal Funds Rate and the Quantity Demanded of Reserves