If the Fed increases reserve requirements,the demand for reserves ________ and the equilibrium federal funds rate ________.
A) increases; drops
B) decreases; rises
C) decreases; drops
D) increases; rises

Question

Quizplus · Accepted Answer

When the Federal Reserve increases reserve requirements, banks need to hold more reserves, thus increasing the demand for reserves. As demand for reserves increases, the price of borrowing reserves, which is the federal funds rate, rises.

If the Fed Increases Reserve Requirements,the Demand for Reserves ________