If the federal funds rate were below the level the Federal Reserve had targeted,the Fed could move the rate back towards its target by
A)buying bonds.This buying would reduce reserves.
B)buying bonds.This buying would increase reserves.
C)selling bonds.This selling would reduce reserves.
D)selling bonds.This selling would increase reserves.

Question

Quizplus · Accepted Answer

Selling bonds would decrease the amount of reserves in the banking system, which would decrease the supply of money and push interest rates higher. This would help to bring the federal funds rate back towards the Federal Reserve's target. Buying bonds would increase reserves and lower interest rates, which would not be effective in this situation where interest rates are already too low.

If the Federal Funds Rate Were Below the Level the Federal