If the Fed purchases government securities from the public, the
A) money supply will decrease.
B) reserves of commercial banks will decrease.
C) required reserves ratio will increase.
D) monetary base will increase.

Question

Quizplus · Accepted Answer

When the Fed purchases government securities from the public, it electronically credits the seller's bank account with newly created reserve balances. This increases the monetary base (which includes currency in circulation and banks' reserve balances) and provides additional reserves for lending and deposit creation by commercial banks. Therefore, the correct choice is D.

If the Fed Purchases Government Securities from the Public, the