Before the financial crisis of 2008, if the Fed bought government securities in the open market, it
A)decreased the excess reserves of the banking system, reducing excess reserves for overnight loans in the Federal funds market, thus lowering the
B)increased the excess reserves of the banking system, reducing excess reserves for overnight loans in the Federal funds market, thus lowering the
C)decreased the excess reserves of the banking system, reducing excess reserves for overnight loans in the Federal funds market, thus increasing the
D)increased the excess reserves of the banking system, raising excess reserves for overnight loans in the Federal funds market, thus lowering the

Question

Quizplus · Accepted Answer

When the Fed buys government securities, it injects money into the banking system, increasing excess reserves and lowering the federal funds rate.

Before the Financial Crisis of 2008, If the Fed Bought