Question

If the Fed desired to reduce the federal funds rate

a. it would conduct an open market sale, reducing reserve supply.
b. it would conduct an open market sale increasing reserve demand.
c. it would conduct an open market purchase, reducing reserve demand.
d. it would conduct an open market purchase, increasing reserve supply.

Answer 1

Answer:

The correct answer is (D)

Explanation:

Fed conducts open market operations to increase or decrease the money supply. In this process fed buys or purchases securities from its ember bank or banks. If the fed wants to increase federal fund rate they sell the securities, and if they want to reduce the federal fund rate they conduct an open market purchase which increases reserve supply.