When the Federal Reserve purchases a government bond from a bank,reserves in the banking system ________ and the monetary base ________,everything else held constant.

Question

Quizplus · Accepted Answer

When the Federal Reserve purchases a government bond from a bank, it pays for that bond by increasing the bank's reserve balance. This increase in reserves means that the banking system has more money to lend out, leading to an increase in the monetary base. Therefore, both bank reserves and the monetary base increase when the Fed buys government bonds from banks.

When the Federal Reserve Purchases a Government Bond from a Bank,reserves