In the Keynesian View, the Fed's Decision to Reduce the Fed

question 39

Multiple Choice

In the Keynesian view, the Fed's decision to reduce the fed funds rate, by increasing the banking system's excess reserves, should have consequences. Which of the below is NOT one of these consequences?

• A) Banks, as the first economic units to be affected, will have more reserves and lower returns from lending in the fed funds market.
• B) Banks will reduce the cost of loans to businesses and consumers and the return (if any) available to investors on short-term deposits.
• C) Investors will be confronted with higher yields on short-term assets, such as Treasury bills and certificates of deposit.
• D) Declines in the general cost of funding will encourage firms to expand and increase their output.

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