If the federal funds rate equals the primary credit discount rate, the Fed is likely to ____securities in the open market, which will cause the federal funds rate to_____ .

Question

Quizplus · Accepted Answer

If the federal funds rate equals the primary credit discount rate, it means that the Federal Reserve is not providing any incentive for banks to borrow or lend in the federal funds market. In this situation, the Fed may choose to buy securities in the open market to increase the money supply and decrease the federal funds rate. This is because the purchase of securities injects reserves into the banking system, making it easier for banks to lend to each other and lowering the overnight borrowing rate. Therefore, the correct choice is B, as buying securities in the open market will cause the federal funds rate to decrease.

If the Federal Funds Rate Equals the Primary Credit Discount