Since the mid-1980s, if the Fed wanted to shift to a more expansionary monetary policy, it would
A) expand the reserves available to the banking system, which would drive down short-term interest rates.
B) reduce the reserves available to the banking system, which would drive down short-term interest rates.
C) expand the reserves available to the banking system, which would drive up short-term interest rates.
D) reduce the reserves available to the banking system, which would drive up short-term interest rates.

Question

Quizplus · Accepted Answer

When the Fed wants to shift to a more expansionary monetary policy, it would expand the reserves available to the banking system, which would drive down short-term interest rates. This is because an increase in reserves would mean there is more money available for banks to lend out, which would lead to increased competition for borrowers and therefore lower interest rates.

Since the Mid-1980s, If the Fed Wanted to Shift to a More