Question

The Federal Reserve can influence the federal funds interest rate by buying securities, which ________ reserves, thereby ________ the federal funds rate
A) adds; raising
B) removes; lowering
C) adds; lowering
D) removes; raising

Answer 1

Answer: C) adds; lowering

Explanation:

Federal Reserve has the ability to influence the federal funds interest rate.

When the Federal reserves buys the securities (financial instruments such as marketable securities or non-marketable securities) they add reserves, which in return lowers the federal funds interest rate.