When the Fed buys bonds through open market operations it gives banks money in return, which ______ banks' ability to lend and _______ aggregate demand.
A) increases; increases
B) decreases; increases
C) increases; decreases
D) decreases; decreases

Question

Quizplus · Accepted Answer

When the Fed buys bonds, it injects money into the banking system, increasing banks' reserves and their ability to lend, which in turn can increase aggregate demand as more money is available for spending and investment.

When the Fed Buys Bonds Through Open Market Operations It