If the Fed wanted to reduce the federal funds interest rate, it might:
If the Fed wanted to reduce the federal funds interest rate, it might:
A. increase the discount rate.
B. increase the required reserve ratio.
C. buy government securities.
D.sell government securities.
E. do any of the above except c.
Homework Answers
For the federal fund interest rate to decrease, there should be more liquidity in the system.
Increasing discount rate reduces liquidity
Increasing reserve ratio also reduces liquidity
Buying government securities pump money into economy and increase liquidity
Selling govt. security absorbs liquidity from economy
Therefore, the correct answer is option C
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