During a period of inflation in the United States, the Federal Reserve sells treasury bonds. Buyers of these bonds write checks to the Fed, and the Fed cashes these checks from banks. Given this information, the banks will most likely:
A) increase the loan amount.
B) increase the discount rate.
C) cut back on the loans they make.
D) cut back on the discount rate.

Question

Quizplus · Accepted Answer

When the Federal Reserve sells treasury bonds, it reduces the reserves in the banking system as the Fed cashes the checks from banks. This leads to a decrease in the banks' reserves, prompting them to cut back on the loans they make.

During a Period of Inflation in the United States, the Federal