When the Federal Reserve buys securities on the open market, excess reserves in the depository institutions system:
A) increase.
B) decrease.
C) increase or decrease, depending on the price of the security.
D) stay the same, but are transferred from one account to another.

Question

Quizplus · Accepted Answer

When the Federal Reserve buys securities on the open market, it pays for these securities by adding credit to the banks' reserves, which directly increases the excess reserves in the depository institutions system.

When the Federal Reserve Buys Securities on the Open Market