If the federal funds rate falls below the targeted rate, the Trading Desk ____ the amount of reserves available to depository institutions in order to bring the fed funds rate back to the targeted level.
A)reverses
B)increases
C)decreases
D)leaves the same

Question

Quizplus · Accepted Answer

When the federal funds rate falls below the targeted rate, the Trading Desk decreases the amount of reserves available to depository institutions to increase the rate back to the target level by making reserves scarcer, thus raising the cost of borrowing them.

If the Federal Funds Rate Falls Below the Targeted Rate