When the Fed lowers the federal funds rate, the quantity of money ________ and the supply of loanable funds ________.

Question

Quizplus · Accepted Answer

When the Fed lowers the federal funds rate, it becomes cheaper for banks to borrow money from each other. As a result, banks increase the amount of money they hold in reserves, leading to an increase in the quantity of money available in the economy. This increase in the quantity of money leads to an increase in the supply of loanable funds, as banks have more money to lend. Therefore, both the quantity of money and supply of loanable funds increase when the Fed lowers the federal funds rate.

When the Fed Lowers the Federal Funds Rate, the Quantity