The increase in excess reserves that occurred as a result of the mortgage debt crisis
A) was offset by restrictive monetary policy.
B) rendered open-market operations ineffective.
C) caused the Fed to set a negative nominal interest rate target for the federal funds rate.
D) prevented the Fed from taking any further action to increase the money supply.

Question

Quizplus · Accepted Answer

The increase in excess reserves made open-market operations ineffective because banks did not need to borrow money from the Fed to meet their reserve requirements. This rendered one of the Fed's primary monetary policy tools less effective.

The Increase in Excess Reserves That Occurred as a Result