If the federal funds interest rate remains within the corridor and the demand for reserves is unchanged, an increase in the quantity of reserves will
A) increase the federal funds rate.
B) lower the federal funds rate.
C) not affect the federal funds rate.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

An increase in the quantity of reserves, when the demand for reserves is unchanged, typically lowers the federal funds rate because banks have more reserves than they need and thus are more willing to lend them out at a lower rate.

If the Federal Funds Interest Rate Remains Within the Corridor