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 currency,the open market purchase ________ reserves; if the proceeds are kept as deposits,the open market purchase ________ reserves.

Question

Quizplus · Accepted Answer

If the proceeds are kept in currency, the reserves do not change because the currency is outside the banking system. If the proceeds are kept as deposits, reserves increase because the deposits are part of the banking system's reserves.

The Effect of an Open Market Purchase on Reserves Differs