question archive When the Federal Reserve seeks to raise the targeted federal funds rate, it: a
When the Federal Reserve seeks to raise the targeted federal funds rate, it: a
Subject:EconomicsPrice:2.88 Bought3
When the Federal Reserve seeks to raise the targeted federal funds rate, it:
a. sells government securities to increase the excess reserves available for overnight loans.
b. sells government securities to decrease the excess reserves available for overnight loans.
c. buys government securities to increase the excess reserves available for overnight loans.
d. buys government securities to decrease the excess reserves available for overnight loans.
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- The correct option is b. Sells government securities to decrease the excess reserves available for overnight loans.
Here, it is stated that the Federal Reserve raises the targeted federal funds rate. This means the Federal Reserve wants to reduce the level of money supply in the economy by raising the lending cost. As a result, the Federal Reserve will sell the government securities to the commercial banks so that there is a decline in the excess reserve with the commercial banks by giving loans on an overnight basis.
