The Fed would use a reverse repo when they: ?

Name: The Fed would use a reverse repo when they: ?
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Question

The Fed would use a reverse repo when they: ?

Quizplus · Accepted Answer

The Fed would use a reverse repo when they want to temporarily decrease the monetary base. When the Fed conducts a reverse repo, they are effectively selling securities and taking in cash from banks, which decreases the amount of reserves that banks have and therefore decreases the monetary base. This is used as a tool to control inflation by reducing the amount of money in circulation.

The Fed Would Use a Reverse Repo When They