The Fed engages in open market operations and sells government securities. As long as the federal funds rate stays in the corridor, the result is
A) a lower federal funds rate.
B) a higher federal funds rate.
C) an unchanged federal funds rate because other interest rates did not change.
D) More information is needed to determine what happens to the federal funds rate.

Question

Quizplus · Accepted Answer

When the Federal Reserve sells government securities in open market operations, it effectively reduces the amount of reserves banks have available. This reduction in reserves typically leads to banks borrowing more from each other, increasing the demand for federal funds and thus raising the federal funds rate.

The Fed Engages in Open Market Operations and Sells Government