Question

Banks decide to do away with fees charged when other banks' customers use the banks' own ATMs. If the Federal Reserve wants to maintain the same federal funds rate, it should:

Answer 1

If the Federal Reserve wants to maintain the same federal funds rate, it should sell treasury bills.

What is Federal Reserve?

• The Federal Reserve System is the United States of America's central banking system.
• The Federal Reserve Act was enacted on December 23, 1913, in response to a succession of financial panics that led to a need for central control of the monetary system in order to relieve financial crises.

What are treasury bills?

• Treasury bills (sometimes known as T-bills) are short-term securities that mature in one year or less from the date they are issued.
• T-bills are purchased for less than or equal to their face value, and when they mature, the Treasury pays the face value.

If the Federal Reserve wishes to keep the federal funds rate constant, it should sell treasury bills.

Therefore, if the Federal Reserve wants to maintain the same federal funds rate, it should sell treasury bills.

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