If commercial banks have no excess reserves and the Fed sells government securities

Question

Quizplus · Accepted Answer

When the Fed sells government securities to commercial banks that have no excess reserves, the banks pay for these securities by reducing their reserves at the Fed. This action decreases the amount of reserves banks have available to support new loans, leading to a decrease in the money supply as banks can create less money through the lending process. The decrease in demand deposits (part of the money supply) is a multiple of the bond sale due to the money multiplier effect.

If Commercial Banks Have No Excess Reserves and the Fed