If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rate ________ and the quantity of reserves ________.

Question

Quizplus · Accepted Answer

When the Fed sells U.S. government securities, it decreases the quantity of reserves in the banking system because banks or individuals who buy those securities pay with reserves. As a result, with fewer reserves available, the cost of borrowing reserves, which is the federal funds rate, rises.

If the Fed Carries Out an Open Market Operation and Sells