When the Reserve Bank ________ securities in an open market operation, banks' reserves ________, and therefore lending ________.
A) buys; decrease; decreases
B) buys; increase; increases
C) sells; increase; increases
D) buys; do not change; does not change
E) sells; decrease; increases

Question

Quizplus · Accepted Answer

When the Reserve Bank buys securities in an open market operation, it pays for these securities, which increases the reserves of the banks. With more reserves, banks can lend more, thus lending increases.

When the Reserve Bank ________ Securities in an Open Market