Which of the following is most likely to occur if the quantity demanded of reserves is less than the quantity supplied of reserves?
A)The fed funds rate will fall.
B)The fed funds rate will rise.
C)Discount borrowing will decrease.
D)Both discount borrowing will decrease and the fed funds rate will rise.

Question

Quizplus · Accepted Answer

When the quantity demanded of reserves is less than the quantity supplied, banks have excess reserves. They will likely lend these excess reserves in the federal funds market, increasing the supply of funds available for lending. This increase in supply, with demand remaining constant, will lead to a decrease in the federal funds rate.

Which of the Following Is Most Likely to Occur If