Homework SourseIf the Fed funds rate rises above the Feds target range the
If the Fed funds rate rises above the Fed\'s target range, the Fed should take:
| A. | a defensive action and reduce the discount rate. | |
| B. | a defensive action and raise the discount rate. | |
| C. | an offensive action and raise the discount rate. | |
| D. | do nothing and go and play golf. |
Solution
A. a defensive action and reduce the discount rate.
If Fed increases the funds rate then money supply decrease so, to keep the money supply at the initial level, Fed has to increase the money supply and it can be done using defensive action and reducing the discount rate.
