The interest rate in overnight lending among banks increased dramatically. What strategy could be used to improve the situation?(1 point)

Question

Responses

The Federal Reserve tightens the reserve requirements in order to have banks hold more funds in the Federal Reserve branch banks.
The Federal Reserve tightens the reserve requirements in order to have banks hold more funds in the Federal Reserve branch banks. - no response given

The Federal Reserve could increase interest rates so that banks can charge higher interest rates to their best customers.
The Federal Reserve could increase interest rates so that banks can charge higher interest rates to their best customers. - incorrect

The Federal Reserve issues reverse repurchase agreements so banks earn a profit within a short period of time.
The Federal Reserve issues reverse repurchase agreements so banks earn a profit within a short period of time. - no response given

The Federal Reserve issues repurchase agreements with banks to increase the amount of cash bank hold in reserves.

Answer 1

The correct response is:

The Federal Reserve issues repurchase agreements with banks to increase the amount of cash banks hold in reserves. This strategy would help inject liquidity into the banking system, thereby lowering overnight interest rates.