If the banking system has a large amount of reserves,many banks will have excess reserves to lend and the federal funds rate will probably ________;if the level of reserves is low,few banks will have excess reserves to lend and the federal funds rate will probably ________.
A)fall;fall
B)fall;rise
C)rise;fall
D)rise;rise

Question

Quizplus · Accepted Answer

If the banking system has a large amount of reserves, many banks will have excess reserves to lend, leading to higher competition among banks for borrowers. This competition will cause the federal funds rate to fall. Conversely, if the level of reserves is low, few banks will have excess reserves to lend, leading to lower competition among banks for borrowers. This lower competition will cause the federal funds rate to rise. Therefore, the correct answer is B.

If the Banking System Has a Large Amount of Reserves,many