The Federal Reserve makes an open market purchase and the change in reserves is the same as the change in the MB. Therefore, the Fed

Question

Quizplus · Accepted Answer

When the Federal Reserve makes an open market purchase directly from banks, the banks' reserves increase by the amount of the purchase. This increase in reserves directly increases the monetary base (MB) by the same amount, as the MB includes both reserves and currency in circulation. Purchases from the public or government would involve changes in currency in circulation as well, complicating the direct one-to-one relationship between the change in reserves and the change in the MB observed in this scenario.

The Federal Reserve Makes an Open Market Purchase and the Change