Question

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves and below discount rate, then an open market ________ the supply of reserves, raising the federal funds interest rate, everything else held constant.

Answer 1

In the market for reserves, if the federal funds rate is directly above the interest rate paid on additional reserves then an open market sale decreases the source of reserves, educating the federal funds interest rate everything else held constant.