If the federal funds rate rises above 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 rises above the target, the Trading Desk at the Federal Reserve increases the amount of reserves available to depository institutions. This action is taken to lower the fed funds rate back to the targeted level by increasing the supply of money, which typically reduces the interest rate.

If the Federal Funds Rate Rises Above the Targeted Rate