If the Federal Reserve purchases government securities,

Question

Quizplus · Accepted Answer

When the Federal Reserve purchases government securities, it injects liquidity into the banking system. As a result, banksʹ reserves will increase, which can influence the federal funds rate. The increase in reserves makes it easier for banks to lend to each other, which can drive down the federal funds rate. However, this effect is not guaranteed and depends on various market factors. The discount rate, which is the interest rate at which banks can borrow from the Federal Reserve, is not directly impacted by the purchase of government securities.

If the Federal Reserve Purchases Government Securities