If the Fed wishes to maintain its interest rate target in the face of decreased money demand it would likely

Question

Quizplus · Accepted Answer

If money demand decreases, there will be excess supply of money which will lead to a lower interest rate. To maintain the interest rate target, the Fed can decrease the money supply by selling securities or increasing reserve requirements which will lessen the supply of funds available for lending and ultimately increase the interest rate.

If the Fed Wishes to Maintain Its Interest Rate Target