Everything else held constant,in the market for reserves,when the supply for federal funds intersects the reserve demand curve along the horizontal section of the demand curve,lowering 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 interest rate paid on excess reserves is lowered, banks are less likely to hold onto their excess reserves and more likely to lend them out in the federal funds market. This increases the supply of federal funds and lowers the federal funds rate.

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