A purchase of Treasury securities held by the Federal Reserve will lead to the maximum possible increase in money supply if banks:

Question

Quizplus · Accepted Answer

When banks do not hold excess reserves and individuals do not hold cash, all of the money from the purchase of Treasury securities by the Federal Reserve is available to be loaned out by banks, leading to a maximum possible increase in the money supply through the money multiplier effect. Holding cash or banks holding excess reserves would reduce the potential increase in the money supply.

A Purchase of Treasury Securities Held by the Federal Reserve