A decrease in the policy rate ________ bank reserves and ________ the overnight rate.
A) increases; raises
B) increases; lowers
C) decreases; raises
D) decreases; lowers

Question

Quizplus · Accepted Answer

A decrease in the policy rate typically leads to an increase in bank reserves as borrowing becomes cheaper, which in turn lowers the overnight rate due to increased liquidity in the banking system.

A Decrease in the Policy Rate ________ Bank Reserves and ________

A Decrease in the Policy Rate Bank Reserves and