If the Fed sterilizes the purchase of foreign assets,
A)the monetary base is left unchanged.
B)the monetary base rises by the amount of the purchase.
C)the monetary base falls by the amount of the purchase.
D)the monetary base may rise, fall, or remain unchanged depending on the reaction of domestic interest rates to the purchase.

Question

Quizplus · Accepted Answer

When the Fed sterilizes the purchase of foreign assets, it means that it adjusts its open market operations to offset the impact of foreign currency flows on the domestic monetary base. This is typically done by selling an equal amount of domestic securities as the value of the purchased foreign assets. This keeps the monetary base unchanged.

If the Fed Sterilizes the Purchase of Foreign Assets