Which of the following will increase commercial bank reserves?

Question

Quizplus · Accepted Answer

When the Federal Reserve Banks purchase government bonds in the open market, it injects new money into the banking system, which increases the commercial bank reserves. This is known as an open market purchase and is one of the ways the Federal Reserve can increase the money supply.

B) is incorrect because a decrease in the reserve ratio would allow banks to hold fewer reserves, which would decrease their overall reserves.

C) is incorrect because an increase in the discount rate would discourage banks from borrowing from the Federal Reserve, which could decrease their reserves.

D) is incorrect because the sale of government bonds in the open market by the Federal Reserve Banks would decrease the reserves of the banks that purchased those bonds.

Which of the Following Will Increase Commercial Bank Reserves