The Fed's sale of U.S. government securities in its open market operations constitutes
A) a restrictive policy because it lowers the amount of total reserves in the banking system.
B) a restrictive policy because it raise the amount of required reserves in the banking system.
C) an expansionary policy because it raises the amount of total and excess reserves in the banking system.
D) an expansionary policy because it raises the amount of excess reserves and lowers the amount of required reserves in the banking system.
E) an expansionary policy because it raises the amount of required reserves in the banking system.

Question

Quizplus · Accepted Answer

When the Fed sells U.S. government securities in its open market operations, it removes reserves from the banking system, making it more difficult for banks to meet their reserve requirements. This is a form of contractionary, or restrictive, monetary policy. Therefore, choice A is the best answer.

The Fed's Sale of U