Question

The Federal funds rate is:

The interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of reserves in the banking system increases, banks' need to borrow from each other rises , and the federal funds rate increases.

The interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of reserves in the banking system decreases, banks' need to borrow from each other falls , and the federal funds rate increases.

The interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of reserves in the banking system decreases, banks' need to borrow from each other rises , and the federal funds rate decreases. +

The interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of reserves in the banking system decreases, banks' need to borrow from each other rises , and the federal funds rate increases.

Answer 1

Ans: The interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of reserves in the banking system decreases, banks' need to borrow from each other rises , and the federal funds rate increases.

Explanation:

The Federal funds rate is the interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserves conducts a contractionary monetary policy by selling government bonds and securities to the commercial banks , then the quantity of reserves in the banking system decreases. So their need to borrow each other rises. It leads increase in the federal funds rate.