In the market for reserves,if the federal funds rate is above the interest rate paid on excess reserves,an open market purchase ________ the supply of reserves and causes the federal funds interest rate to ________,everything else held constant.
A)decreases;fall
B)increases;fall
C)increases;rise
D)decreases;rise

Question

Quizplus · Accepted Answer

An open market purchase increases the supply of reserves in the banking system because the central bank is buying securities from the banks and paying them with reserves. This increase in reserves puts downward pressure on the federal funds rate, causing it to fall, everything else held constant.

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