Everything else held constant,in the market for reserves,when the federal funds rate equals the interest rate paid on excess reserves,raising the interest rate paid on excess reserves
A)increases the federal funds rate.
B)lowers the federal funds rate.
C)has no effect on the federal funds rate.
D)has an indeterminate effect of the federal funds rate.

Question

Quizplus · Accepted Answer

When the federal funds rate equals the interest rate paid on excess reserves, raising the interest rate on excess reserves makes holding reserves more attractive. Banks will be less inclined to lend out their excess reserves in the federal funds market, reducing the supply of funds available for lending. This decrease in supply, with demand remaining constant, leads to an increase in the federal funds rate.

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