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Homework answers / question archive /  If the federal funds rate falls, a

 If the federal funds rate falls, a

Economics

 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.

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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.