Refer to the diagram for the federal funds market. If the federal funds rate rose from 3.5 percent to 4.0 percent, which of the following is the most likely explanation?

A.  The Fed sold bonds to banks.
B.  The Fed bought bonds from banks.
C.  The demand for federal funds fell.
D.  The Fed raised the prime interest rate.

ANSWER

A.  The Fed sold bonds to banks.