If the Fed wanted to reduce the federal funds interest rate, it might:
A)decrease the interest rate it pays on bank reserves.
B)decrease the required reserve ratio.
C)buy government securities.
D)Do any of the above.

Question

If the Fed wanted to reduce the federal funds interest rate, it might:​
A)​decrease the interest rate it pays on bank reserves.
B)​decrease the required reserve ratio.
C)​buy government securities.
D)​Do any of the above.

Quizplus · Accepted Answer

Each of the actions listed—decreasing the interest rate on bank reserves, decreasing the required reserve ratio, and buying government securities—can lead to a reduction in the federal funds interest rate. These actions increase the liquidity in the banking system, making it easier for banks to lend to one another at lower rates.

If the Fed Wanted to Reduce the Federal Funds Interest