When the Fed buys U.S. government securities from a bank, the Fed
A) loans the money needed to buy the securities to the bank.
B) increases the bank's reserves at the Fed.
C) obtains the money for the purchase from the U.S. Treasury.
D) decreases the monetary base and raises the federal funds rate.

Question

Quizplus · Accepted Answer

When the Federal Reserve buys U.S. government securities from a bank, it credits the bank's reserve account at the Fed, effectively increasing the bank's reserves. This action does not involve loaning money to the bank, obtaining money from the U.S. Treasury, or decreasing the monetary base and raising the federal funds rate.

When the Fed Buys U