Question

In the market for reserves, consider an initial case where the discount rate and the federal funds rate are 7.5% If the FR Bank decides to sell securities, then the _______ curve will shift to the ______.  

Group of answer choices

A) demand; left

B) demand; right

C) supply; right

D) supply; left

Answer 1

Federal funds rate is interest rate by which one commercial bank lends to another commercial bank on the overnight basis

Discount rate is the interest rate that is charged by the Federal reserve Bank to the other commercial banks

Now from the given questions both the discount rates and federal fund rate are 7.5% and when Bank decides to sell the securities it means it will come under the contractionary monetary policy

In this , the goal is to decreasethe money supply and to do this there will be increase in the interest rate or discount rate which will lead to to less supply

Due to this the supply curve will shift to left and ultimately it will cause less flow in the money in the economy

Investment and consumer spending will also decreases.

Answer this option D