Question

The interest rate in the federal funds market:_________.

a. is an interest rate that is largely unaffected by the policies of the Fed.
b. will fall if the Fed sells bonds and, thereby, reduces the reserves available to banks.
c. is determined by the imposition of price controls imposed by the Fed.
d. rises when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves.

Answer 1

Federal Funds Rate:

d. rises when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves.

Step-by-step explanation:

Federal funds rate is the target interest rate set by the FOMC (Federal Open Market Committee) at which commercial banks with deficit reserves borrow and banks with surplus reserves lend their excess reserves to each other overnight without collateral. The rates are set eight times a year in line with prevailing economic situations. The rates are lowered to boost economic growth and reduce unemployment by increasing money supply. They are increased to check inflation.