In the market for bank reserves, if the federal funds rate target is higher than the federal funds rate, the Fed will take action to ________ reserves.

Question

Quizplus · Accepted Answer

If the federal funds rate target is higher than the federal funds rate, it means that there is an excess supply of reserves in the market, which puts downward pressure on the federal funds rate. To bring the federal funds rate closer to its target, the Fed will take action to decrease the supply of reserves. This can be done through open market operations such as selling government securities, which will remove reserves from the market and increase the cost of borrowing reserves for banks.

In the Market for Bank Reserves, If the Federal Funds