An increase in the quantity of reserves leads to a

Question

Quizplus · Accepted Answer

An increase in the quantity of reserves leads to an increase in supply, which in turn puts downward pressure on the federal funds rate (the interest rate at which banks lend reserves to each other overnight). Therefore, choice A is correct. Choice B is incorrect because an increase in reserves does not necessarily have a direct impact on the price level. Choice C is incorrect because an increase in reserves does not necessarily have a direct impact on the velocity of circulation. Choice D is incorrect because an increase in reserves would lead to a rightward shift in the demand curve for reserves, not a leftward shift.

An Increase in the Quantity of Reserves Leads to a