If the Fed purchases government securities in the open market,_____.

Question

Quizplus · Accepted Answer

When the Fed purchases government securities in the open market, it pays for them by crediting the seller's account at a commercial bank. This increases the reserves of the commercial bank, and it can then potentially lend out a portion of these reserves, leading to an increase in the money supply. This process can occur regardless of who the seller of the securities is. Therefore, the correct answer is E.

If the Fed Purchases Government Securities in the Open Market,_____