Which of the following is true?
A)If the fed funds rate rises above the targeted rate, the Trading Desk should increase the amount of reserves available to depository institutions to bring the rate back to the targeted level.
B)Retail sweep accounts have jeopardized the implementation of monetary policy because required reserves have fallen to very low levels.
C)The funds available for required reserves have increased significantly in recent years due to the growth of retail sweep accounts.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

If the fed funds rate rises above the targeted rate, it means there is excess demand for reserves. To bring the rate back to the targeted level, the Trading Desk should increase the amount of reserves available to depository institutions. Therefore, option A is true. Option B is incorrect because retail sweep accounts do not jeopardize the implementation of monetary policy, but rather impact the level of required reserves. Option C is also incorrect because the growth of retail sweep accounts has reduced the funds available for required reserves, not increased them.

Which of the Following Is True