Ceteris paribus, if the quantity demanded of reserves is less than the quantity supplied of reserves, the fed funds rates will
A)decrease.
B)remain the same.
C)increase.
D)increase dramatically

Question

Quizplus · Accepted Answer

If the quantity demanded of reserves is less than the quantity supplied of reserves, then there are more reserves in the market than there are buyers for them. This leads to banks having excess reserves, which in turn leads to increased competition among banks to lend out these excess reserves. To do so, banks lower the interest rates they charge on overnight loans in the fed funds market, which causes the fed funds rate to decrease.

Ceteris Paribus, If the Quantity Demanded of Reserves Is Less