An open market purchase by the Fed
A) increases the total amount of reserves in the banking system.
B) decreases the total amount of reserves in the banking system.
C) does not change the total amount of reserves in the banking system.
D) causes the reserve requirement to fall.

Question

Quizplus · Accepted Answer

An open market purchase by the Fed increases the total amount of reserves in the banking system. The Fed purchases Treasury securities from banks, paying for them by crediting the banks' reserve accounts at the Fed. This increases the amount of reserves that banks have in the system, which can lead to increased lending and economic activity.

An Open Market Purchase by the Fed