The Federal Reserve can influence the federal funds rate by shifting ________.

Question

Quizplus · Accepted Answer

The Federal Reserve can influence the federal funds rate by shifting either the quantity of reserves supplied or the demand curve for reserves. If the Fed increases the quantity of reserves supplied, this will shift the supply curve to the right, resulting in a lower federal funds rate. If the Fed decreases the quantity of reserves supplied, this will shift the supply curve to the left, resulting in a higher federal funds rate. Similarly, if the Fed increases the demand for reserves, this will shift the demand curve to the right, resulting in a higher federal funds rate. If the Fed decreases the demand for reserves, this will shift the demand curve to the left, resulting in a lower federal funds rate.

The Federal Reserve Can Influence the Federal Funds Rate by Shifting