If the Fed sells government securities to the general public in the open market,
A) the Fed gives the securities to the public; the public pays for the securities by writing checks that, when cleared, will increase commercial bank reserves at the Fed.
B) the Fed gives the securities to the public; the public pays for the securities by writing checks that, when cleared, will decrease commercial bank reserves at the Fed.
C) the public gives the securities to the Fed in exchange for a Fed check, which, when deposited at commercial banks, will increase their reserves at the Fed.
D) the public gives the securities to the Fed in exchange for a Fed check, which, when deposited at commercial banks, will decrease their reserves at the Fed.

Question

Quizplus · Accepted Answer

When the Fed sells government securities to the general public in the open market, the public pays for the securities by writing checks that, when cleared, will decrease commercial bank reserves at the Fed. This is because the public's checking accounts at their banks will be debited to pay for the securities, reducing the banks' reserves held at the Fed.

If the Fed Sells Government Securities to the General Public