If the Fed uses nonborrowed reserves,a reserve aggregate,as a target,fluctuations in the reserves demand curve will cause ________ to fluctuate.
A) nonborrowed reserves
B) the federal funds interest rate
C) monetary aggregates
D) the inflation rate

Question

Quizplus · Accepted Answer

Fluctuations in the reserves demand curve will affect the federal funds interest rate. When demand for reserves increases, the federal funds rate will also increase as banks compete to borrow reserves from each other in the overnight interbank market. Similarly, when reserves demand decreases, the federal funds rate will decline. This is because the Fed uses the federal funds rate as a tool to implement monetary policy and achieve its goals of price stability and full employment.

If the Fed Uses Nonborrowed Reserves,a Reserve Aggregate,as a Target,fluctuations