Everything else held constant,in the market for reserves,decreases in the interest rate paid on excess reserves affect the federal funds rate
A)when the funds rate is below the interest rate paid on excess reserves.
B)when the funds rate equals the interest rate paid on excess reserves.
C)when the funds rate is below the discount rate.
D)when the funds rate equals the discount rate.

Question

Quizplus · Accepted Answer

When the federal funds rate equals the interest rate paid on excess reserves, a decrease in the interest rate on excess reserves will lower the federal funds rate, as banks will be less inclined to hold excess reserves and more inclined to lend them out, thus increasing the supply of reserves and lowering the rate.

Everything Else Held Constant,in the Market for Reserves,decreases in the Interest