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Question
Under the Fedʹs current interest-rate-targeting approach to monetary policy, if the demand for federal funds by depository institutions increases today, then, other things being equal,
A) the market federal funds rate decreases, and the Fedʹs Trading Desk responds by selling bonds.
B) the market federal funds rate increases, and the Fedʹs Trading Desk responds by buying bonds.
C) the market federal funds rate decreases, and the Fedʹs Trading Desk responds by buying bonds.
D) the market federal funds rate increases, and the Fedʹs Trading Desk responds by selling bonds.
Answer
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