Which of the following is likely to happen to the demand curve for reserves if the federal funds rate increases,everything else remaining constant?
A) The demand curve for reserves will shift to the right.
B) The demand curve for reserves will shift to the left.
C) There will be a downward movement along the demand curve for reserves.
D) There will be an upward movement along the demand curve for reserves.

Question

Quizplus · Accepted Answer

An increase in the federal funds rate, all else being constant, makes borrowing reserves more expensive. This does not shift the demand curve but results in an upward movement along the demand curve as banks are willing to hold more reserves at higher interest rates to avoid borrowing at the higher cost.

Which of the Following Is Likely to Happen to the Demand