When the Fed conducts open market purchases,bank reserves
A)increase and banks can increase lending.
B)increase and banks must decrease lending.
C)decrease and banks can increase lending.
D)decrease and banks must decrease lending.

Question

Quizplus · Accepted Answer

When the Fed conducts open market purchases, it buys government securities from banks, which increases the banks' reserves. This increase in reserves allows banks to make more loans, which in turn can stimulate economic activity. Therefore, the correct choice is A.

When the Fed Conducts Open Market Purchases,bank Reserves