If the Fed lends to member banks, what happens to reserves and the money supply?
A) Reserves increase and the money supply decreases.
B) Both increase.
C) Reserves decrease and the money supply increases.
D) Both decrease.

Question

Quizplus · Accepted Answer

When the Fed lends to member banks, it increases the reserves of those banks, allowing them to lend more, which in turn increases the money supply.

If the Fed Lends to Member Banks, What Happens to Reserves