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In the market for reserves, the equilibrium interest rate is 4% and the discount rate is 8%.

In the market for reserves, the equilibrium interest rate is 4% and the discount rate is 8%. Then there is a decrease in households' demand for cash and so, commercial banks choose to hold less reserves. Then there will be a ___ in the interest rate, and if the FR Bank then wants to use a defensive open market operation to restore the initial interest rate, they should ___ securities.
Answer

A. decrease; buy

B. increase; sell

C. decrease; sell

D. increase; buy
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Finance-8097410.doc

In the market for reserves, the equilibrium interest rate is 4% and the discount rate is 8%. Then
there is a decrease in households' demand for cash and so, commercial banks choose to hold less...

Sign up to view the full answer

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