When the Federal Reserve seeks to raise the targeted federal funds rate, it _____. Multiple Choice...
When the Federal Reserve seeks to raise the targeted federal funds rate, it _____.
Multiple Choice
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buys government securities to decrease the excess reserves available for overnight loans
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buys government securities to increase the excess reserves available for overnight loans
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sells government securities to decrease the excess reserves available for overnight loans
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sells government securities to increase the excess reserves available for overnight loans
Homework Answers
Answer
Option 3
sells government securities to decrease the excess reserves available for overnight loans
A federal fund rate is a rate charged by banks to each other for overnight borrowings. The rate depends on the reserves as if there is no reserve there is a demand for it so to reduce reserves and increase demand increases the rate.
The reserve decreases as the Fed decreases the money supply.
the money supply decreases if the Fed sells government securities and take of the money from the economy and provides security documents.
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When the Federal Reserve seeks to raise the targeted federal funds rate, it _____.
Multiple Choice...
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