The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds.If the proceeds are kept in ________,the open market purchase has no effect on reserves; if the proceeds are kept as ________,reserves increase by the amount of the open market purchase.

Question

Quizplus · Accepted Answer

If the seller of the bonds keeps the proceeds in currency, reserves will increase by the amount of the open market purchase. However, if the proceeds are kept as deposits, the open market purchase has no effect on reserves. Option A and D are incorrect because if the proceeds are kept as deposits, there will be no effect on reserves. Option B is incorrect because if the proceeds are kept in currency, reserves will increase, not if they are kept in deposits.

The Effect of an Open Market Purchase on Reserves Differs