When the Fed lowers the federal funds rate, it can lead to
A) the Fed selling government securities.
B) an increase in lending by banks.
C) a decrease in demand deposits.
D) a decrease in the quantity of money.

Question

Quizplus · Accepted Answer

When the Federal Reserve lowers the federal funds rate, it makes borrowing cheaper for banks. This typically encourages banks to lend more to businesses and consumers, as the cost of obtaining funds to lend out is reduced.

When the Fed Lowers the Federal Funds Rate, It Can