If the Open-Market Desk at the Fed buys securities when the federal funds rate is below the primary credit discount rate, the most likely effect is that the
A)federal funds rate decreases.
B)primary credit discount rate decreases.
C)primary credit discount rate increases.
D)federal funds rate increases.

Question

Quizplus · Accepted Answer

When the Open-Market Desk buys securities when the federal funds rate is below the primary credit discount rate, it increases the supply of reserves in the banking system. This leads to a decrease in the federal funds rate as banks will have more reserves to lend to each other. Therefore, the most likely effect is that the federal funds rate decreases.

If the Open-Market Desk at the Fed Buys Securities When