Principles of Macroeconomics / Unit 12 MAC 1124 short lesson, about 20 seconds
How IORB Moves the Federal Funds Rate
Captions available
The idea
A bank will not lend reserves overnight for less than holding them earns. Lower the rate on reserves and banks lend into the funds market instead, so the funds rate falls. Raise it and the reverse happens.
In practice
The rate on reserves acts as a floor the funds rate tracks.
Where people slip
The bank now steers a price rather than a quantity.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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