In the market for reserves,if the federal funds rate is between the discount rate and the interest rate paid on excess reserves,a ________ in the reserve requirement decreases the demand for reserves,________ the federal funds interest rate,everything else held constant.

Question

Quizplus · Accepted Answer

A decrease in the reserve requirement decreases the demand for reserves, leading to a surplus in reserves in the market. This surplus puts downward pressure on the federal funds interest rate, leading to a lowering of the rate. So, the answer is option C- decline in the reserve requirement decreases the demand for reserves, lowering the federal funds interest rate.

In the Market for Reserves,if the Federal Funds Rate Is