Question

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, then an open market ________ the supply of reserves, raising the federal funds interest rate, everything else held constant.

Answer 1

Sales decreases

Step-by-step explanation:

In this question, we are asked to state what happens in terms of sales in a reserves market given that the federal funds rate is above the interest paid on excess reserves

A reserves market simply refers to that market that contains that amount of money held by the government.

Now, given that the federal funds rate is above the interest paid on these reserves, it will have an effect on the open market as sales will decrease. This causes a ripple effect on the supply of reserves by raising the federal funds interest rate