When the Fed conducts an open market operation by purchasing securities from a bank,__________________ .
A) the bankʹs reserves increase
B) public holdings of securities increase
C) the bankʹs deposits increase but its reserves decrease
D) the bankʹs deposits increase but its reserves do not change

Question

Quizplus · Accepted Answer

When the Fed purchases securities from a bank, it pays for them by crediting the bank's reserve account held at the Fed. This increases the bank's reserves, as it now has more funds available in its reserve account.

When the Fed Conducts an Open Market Operation by Purchasing