If the Fed attempts to decrease the amount of deposits that banks hold, it can
A)buy government bonds in an open market operation.
B)sell government bonds in an open market operation.
C)force banks by decree to do so.
D)sell domestic deposits to foreign investors.
E)None of these

Question

Quizplus · Accepted Answer

By selling government bonds in an open market operation, the Fed can decrease the amount of reserves that banks hold, leading to a decrease in deposits held by banks. This is because when the Fed sells bonds, banks use their reserves to purchase them, thereby reducing the amount of money they have available to hold as deposits.

If the Fed Attempts to Decrease the Amount of Deposits