When the Fed sells government securities on the open market

Name: When the Fed sells government securities on the open market
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Question

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When the Fed sells government securities on the open market, it takes money out of the banking system. This decreases the amount of reserves that banks have, and as a result, their ability to make loans. Therefore, bank reserves decline. This is known as a contractionary monetary policy, as it aims to reduce the money supply and control inflation.

When the Fed Sells Government Securities on the Open Market