Everything else held constant,in the market for reserves,when the federal funds rate is 3%,increasing the interest rate paid on excess reserves from 1% to 2%
A)lowers the federal funds rate.
B)raises the federal funds rate.
C)has no effect on the federal funds rate.
D)has an indeterminate effect on the federal funds rate.

Question

Quizplus · Accepted Answer

Increasing the interest rate paid on excess reserves makes it more attractive for banks to hold excess reserves, which reduces the supply of reserves in the market and raises the federal funds rate.

Everything Else Held Constant,in the Market for Reserves,when the Federal