When the Fed makes open-market purchases bank
A)deposits and lending increase.
B)withdrawals and lending increase.
C)withdrawals increase and lending decreases.
D)deposits increase and lending decreases.

Question

Quizplus · Accepted Answer

When the Federal Reserve (Fed) makes open-market purchases, it buys securities (like government bonds) from banks. This action injects money into the banking system, increasing banks' reserves. With more reserves, banks can increase their lending activities. Additionally, as banks receive payment for the securities, their deposits also increase. Therefore, both deposits and lending increase as a result of the Fed's open-market purchases.

When the Fed Makes Open-Market Purchases Bank