In the market for reserves,if the federal funds rate is above the interest rate paid on excess reserves,an open market sale ________ the supply of reserves causing the federal funds rate to ________,everything else held constant.
A)decreases;decrease
B)increases;decrease
C)increases;increase
D)decreases;increase

Question

Quizplus · Accepted Answer

An open market sale by the Federal Reserve decreases the supply of reserves in the banking system because banks are selling their securities to the Fed in exchange for reserves. This reduction in reserves increases the federal funds rate, as banks have fewer reserves and may charge more for overnight loans to other banks.

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