When a primary dealer sells a government bond to the Federal Reserve,reserves in the banking system ________ and the monetary base ________,everything else held constant.

Question

Quizplus · Accepted Answer

When the Federal Reserve buys government bonds from primary dealers, it pays for these bonds by increasing the reserves of the banking system. This action directly increases the monetary base, as the monetary base consists of currency in circulation plus reserves held at the Fed.

When a Primary Dealer Sells a Government Bond to the Federal