Question 6 If the Fed wants to raise the federal funds rate, it needs to o o o o
ID: 1114686 • Letter: Q
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Question 6 If the Fed wants to raise the federal funds rate, it needs to o o o o buy government securities in order to increase the quantity of reserves. sell government securities in order to decrease the quantity of reserves. buy government securities in order to decrease the quantity of reserves. sell government securities in order to increase the quantity of reserves. Question 7 - choose one of the options in the squared brackets In November 2008, the Reserve Bank of India lowered its "repo" rate, the rate at which it lends to banks, from 8 percent to 7.5 percent. Only two weeks earlier, it had lowered the rate from 9 percent to 8 percent The Economist, 11/6/2008 The Reserve Bank of India is lowering its repo rate to fight[a recession/an expansion]. Based on the information above, you can conclude that India's repo rate is equivalent to [the federal funds rate in the US / the Fed's discount rate / the required reserve ratio in the US]Explanation / Answer
Q.6. The right answer is option 2: Sell government securities in order to decrease the quantity of reserves.
The federal fund's rate refers to the rate at which depository institutions like banks and credit unions lend reserve balances to other depository institutions. When the Fed wants to raise the federal funds rate, it will sell government securities to add the securities to the bank's reserves and take away credit.Banks will now borrow more to fulfill their reserve requirements. Increased borrowing by banks to meet reserve requirements will increase the federal funds rate.
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