The lower bound for the federal funds rate is set by the:
A)repurchase agreements and interest on excess reserves.
B)discount rate.
C)open market trading desk.
D)president of the country.

Question

Quizplus · Accepted Answer

The lower bound for the federal funds rate is set by the Federal Reserve through their implementation of monetary policy. One tool they use is repurchase agreements, which allow them to inject liquidity into the banking system and influence interest rates. Another tool is interest on excess reserves, which incentivizes banks to keep funds with the Fed rather than loaning them out at too low of a rate. Both of these tools can help set a lower bound for the federal funds rate. The discount rate, while also a tool used by the Fed, is generally seen as the upper bound for the federal funds rate. The open market trading desk is a division of the Fed that carries out monetary policy decisions, but they do not directly set the lower bound for the federal funds rate. The president of the country also does not have authority to set the lower bound for the federal funds rate.

The Lower Bound for the Federal Funds Rate Is Set