If an increase in the demand for reserves causes a deviation in the federal funds rate from a target rate,the Fed can maintain the target by ________.
A) causing the supply curve of reserves to shift to the left
B) causing the supply curve of reserves to shift to the right
C) causing an upward movement along the supply curve of reserves
D) causing a downward movement along the supply curve of reserves

Question

Quizplus · Accepted Answer

If an increase in the demand for reserves causes the federal funds rate to deviate from the target, the Fed can maintain the target by increasing the supply of reserves through open market operations. This would shift the supply curve of reserves to the right, which would lower the federal funds rate back to the target level. Therefore, the correct choice is B, causing the supply curve of reserves to shift to the right.

If an Increase in the Demand for Reserves Causes a Deviation