If the Fed carries out an open market operation and sells U.S. government securities, as long as the federal funds interest rate remains within the corridor the federal funds rate ________ and the quantity of reserves ________.
A) falls; increases
B) rises; increases
C) falls; decreases
D) rises; decreases

Question

Quizplus · Accepted Answer

When the Fed sells U.S. government securities, it effectively removes money from the banking system, which decreases the quantity of reserves. With fewer reserves available, the cost of borrowing those reserves (the federal funds rate) rises, as long as the rate remains within the Fed's target range.

If the Fed Carries Out an Open Market Operation and Sells