f the Fed decreases the federal funds rate and/or the discount rate, the money supply does what? A. It increases. B. It decreases. C. It remains unchanged as the federal funds rate has no impact on the money supply.

f the Fed decreases the federal funds rate and/or the discount rate, the money supply does what? A. It increases. B. It decreases. C. It remains unchanged as the federal funds rate has no impact on the money supply.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter13: Monetary Policy

Section: Chapter Questions

Problem 7E

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Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

Question

If the Fed decreases the federal funds rate and/or the discount rate, the money supply does what?

A. It increases.
B. It decreases.
C. It remains unchanged as the federal funds rate has no impact on the money supply.

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