Scenario: the Following Figure Shows the Federal Funds Market

Multiple Choice

Scenario: The following figure shows the federal funds market. Assume that the market of reserves is in equilibrium at $500 billion in reserves and a 3 percent federal funds rate.

-Refer to the scenario above.Suppose the Fed wants to raise the federal funds rate by 2 percent.To do this,the Fed will have to ________.

A) sell $400 billion worth of bonds to a private bank
B) sell less than $400 billion worth of bonds to a private bank
C) buy $400 billion worth of bonds from a private bank
D) buy less than $400 billion worth of bonds from a private bank