In the market for reserves,when the federal funds rate is above the interest rate paid on excess reserves,the demand curve for reserves is
A)vertical.
B)horizontal.
C)positively sloped.
D)negatively sloped.

Question

Quizplus · Accepted Answer

When the federal funds rate is above the interest rate paid on excess reserves, banks have an incentive to lend any excess reserves rather than hold them, since lending at the federal funds rate would yield a higher return than the interest paid on those reserves. This creates a situation where the quantity of reserves demanded decreases as the federal funds rate increases, leading to a negatively sloped demand curve for reserves.

In the Market for Reserves,when the Federal Funds Rate Is