When the Fed buys federal government securities on the open market from commercial banks, then, over time, the:
A) assets of these banks fall.
B) assets of the banks stay the same.
C) assets of the banks rise.
D) liabilities of the bank rise.
E) liabilities of the bank fall.

Question

Quizplus · Accepted Answer

When the Fed buys federal government securities from commercial banks, it does so by increasing the reserves of these banks. This increase in reserves allows the banks to make additional loans, which in turn increases their assets. Therefore, over time, the assets of commercial banks will rise.

When the Fed Buys Federal Government Securities on the Open