An open market purchase of securities by the Reserve Bank leads to all of the following EXCEPT
A) an increase in bank lending.
B) an increase in the monetary base.
C) a decrease in the quantity of money.
D) an increase in banks' reserves.
E) an initial increase in excess reserves.

Question

Quizplus · Accepted Answer

When the Reserve Bank purchases securities in the open market, it injects money into the banking system, increasing banks' reserves and the monetary base. This typically leads to an increase in bank lending and an initial increase in excess reserves, not a decrease in the quantity of money.

An Open Market Purchase of Securities by the Reserve Bank