If the Fed sells securities to commercial banks, there is no money multiplier effect.

Question

Quizplus · Accepted Answer

When the Fed sells securities to commercial banks, it decreases the banks' reserves, which in turn reduces their ability to lend. This process decreases the money supply but involves the money multiplier effect in reverse, as the initial reduction in reserves is magnified through the banking system, leading to a larger overall decrease in the money supply.

If the Fed Sells Securities to Commercial Banks, There Is