If the Federal Reserve purchases government securities,
A) banks' reserves will increase.
B) the federal funds rate will rise.
C) the discount rate will be forced higher.
D) None of the above answers is correct because none of the mentioned effects occur.

Question

Quizplus · Accepted Answer

When the Federal Reserve purchases government securities, it pays for these securities by adding credit to the banks' reserves, effectively increasing the amount of reserves banks have available. This is a part of the monetary policy operations used to manage liquidity and control interest rates.

If the Federal Reserve Purchases Government Securities