When the Fed purchases government securities from a commercial bank, the bank
A)loses its ability to make loans.
B)automatically becomes poorer.
C)loses equity in the Fed.
D)receives reserves that can be loaned out.

Question

Quizplus · Accepted Answer

When the Fed purchases government securities from a commercial bank, the bank receives reserves that can be loaned out. This injection of reserves gives the bank more capacity to issue loans and expand its lending activities.

When the Fed Purchases Government Securities from a Commercial Bank