1. (2017 Exam FM Sample Questions #185) The Federal Open Market Committee (FOMC) has decided to decrease the target level of the federal funds rate. Determine the effect on the reserving and lending activity of U.S. banks. (A) It becomes more expensive for banks to run a shortfall in their reserve accounts; thus, banks will be motivated to write fewer loans, and the interest rates charged on these loans will decrease. (B) It becomes more expensive for banks to run a shortfall in their reserve accounts; thus, banks will be motivated to write fewer loans, and the interest rates charged on these loans will increase. (C) It becomes more expensive for banks to run a shortfall in their reserve accounts; thus, banks will be motivated to write more loans, and the interest rates charged on these loans will decrease. (D) It becomes less expensive for banks to run a shortfall in their reserve accounts; thus, banks will be motivated to write more loans, and the interest rates charged on these loans will increase. (E) It becomes less expensive for banks to run a shortfall in their reserve accounts; thus, banks will be motivated to write more loans, and the interest rates charged on these loans will decrease