1) Suppose on any given day there is an excess demand of reserves in the federal funds market. If the Federal Reserve wishes to keep the federal funds rate at its current level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant.

A) defensive; sale

B) defensive; purchase

C) dynamic; sale

D) dynamic; purchase

2) In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market purchase ________ the supply of reserves and causes the federal funds interest rate to ________, everything else held constant.

A) decreases; fall

B) increases; fall

C) increases; rise

D) decreases; rise

3) Suppose on any given day the prevailing equilibrium federal funds rate is above the Federal Reserve”s federal funds target rate. If the Federal Reserve wishes for the federal funds rate to be at their target level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant.

A) defensive; sale

B) defensive; purchase

C) dynamic; sale

D) dynamic; purchase