To make sure that the federal funds rate does not fall much below the floor set by the interest rate on excess reserves,the Federal Reserve has set up the ________ facility in which these nonbank lenders can lend to the Fed and earn an interest rate that is close to the interest rate the Fed pays on excess reserves.
A)reverse repo
B)Term Securities Lending
C)Term Auction
D)Primary Dealer Credit

Question

Quizplus · Accepted Answer

The reverse repo facility is used to prevent the federal funds rate from falling much below the interest rate on excess reserves. It allows nonbank lenders to lend to the Fed and earn an interest rate that is close to the interest rate the Fed pays on excess reserves. The other options listed are not directly related to this purpose.

To Make Sure That the Federal Funds Rate Does Not