When the Fed makes an open market sale of bonds the _____ of reserves shifts to the
A) demand, left.
B) demand, right.
C) supply, left.
D) supply, right.

Question

Quizplus · Accepted Answer

When the Fed sells bonds in an open market operation, it effectively removes money from the banking system because the purchasers of these bonds pay the Fed, which reduces the reserves they hold at the Fed. This action decreases the total amount of reserves available to banks, shifting the supply curve of reserves to the left.

When the Fed Makes an Open Market Sale of Bonds