When the Federal Reserve raises the federal funds rate, the quantity of reserves ________, the quantity of money ________, and the quantity of loans ________.

Question

Quizplus · Accepted Answer

When the Federal Reserve raises the federal funds rate, banks borrow fewer reserves from one another, resulting in a decrease in the quantity of reserves. With fewer reserves, banks have less money to lend, leading to a decrease in the quantity of money. As a consequence, a decrease in the quantity of reserves and money will induce a contraction in lending and a decrease in the quantity of loans. Therefore, A is the best answer.

When the Federal Reserve Raises the Federal Funds Rate, the Quantity