Which of the following statements is true?
A) The Federal Reserve sets the federal funds rate.
B) The Federal Reserve sets the target for the federal funds rate, and then uses the reserve ratio to push banks toward that target.
C) The Federal Reserve does not set the federal funds rate, but historically has inﬂuenced it using its open-market operations.
D) The Federal Reserve will set a higher target for the federal funds rate if pursuing an expansionary monetary policy.

Question

Quizplus · Accepted Answer

The Federal Reserve does not set the federal funds rate, but historically has influenced it using its open-market operations. The reserve ratio is not directly used to push banks towards a target rate, instead, it is used to regulate the amount of reserves banks hold in order to influence the money supply. The Federal Reserve also generally sets a lower target for the federal funds rate when pursuing an expansionary monetary policy.

Which of the Following Statements Is True