If the Fed carries out an open market operation to buy U.S. government securities, if the federal funds rate stays in 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 buys U.S. government securities, it increases the reserves in the banking system, which typically leads to a decrease in the federal funds rate as banks have more reserves to lend to one another.

If the Fed Carries Out an Open Market Operation to Buy