I got this question wrong:
Which of the following best describes the relationship between bank reserves, the federal funds rate, and a decrease in interest rates for consumers and business?
The answer is: If the FOMC uses monetary policy to increase the amount of reserves in the banking system, the federal funds rate will decrease, which will result in generally lower interest rates.
I put: If the FOMC uses monetary policy to decrease the amount of reserves in the banking system; the federal funds rate will decrease, which will result in generally lower interest rates.
Why is my answer wrong? Because I though that when the FOMC decreases the required reserves, the banks have more money to loan out. So know the federal funds rate goes down since other banks also have more money to loan out, hence, a lower interest rate. Please explain to me where my understanding went wrong!! I have a test coming up and I thought I understood this and now I'm freaking out!! Thanks for you help!