The Fed's purchase of securities from depository institutions results in:
A) a decrease in reserves and a potential reduction in the money supply.
B) a decrease in reserves and a potential expansion in the money supply.
C) an increase in reserves and a potential reduction in the money supply.
D) an increase in reserves and a potential expansion in the money supply.

Question

Quizplus · Accepted Answer

When the Fed purchases securities from depository institutions, it pays for these securities by increasing the reserves of these institutions. This increase in reserves can then be used by banks to extend more loans, potentially expanding the money supply.

The Fed's Purchase of Securities from Depository Institutions Results In