If the federal funds rate falls, a

Economics Dec 12, 2020

If the federal funds rate falls, a. What will happen to the amount of money banks wish to lend out to businesses? Explain. b. What will happen to the interest rate that banks charge businesses? Explain.

Expert Solution

A. Federal funds rate is the rate at which banks lend each other to meet reserve requirements. So, when it falls, banks can easily borrow from others to meet reserve requirements. So, banks would like to maintain a lower reserve and lend out more. So, banks would loan out more amount to businesses.

B. The interest rate would fall as banks have more money to lend and they can borrow at a lower cost to meet reserve requirements.

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote