When good weather speeds the check-clearing process,float tends to ________ causing the Fed to initiate defensive open market ________.
A)decrease;sales
B)decrease;purchases
C)increase;sales
D)increase;purchases

Question

Quizplus · Accepted Answer

Good weather speeds up the check-clearing process which means that more funds are available in the banking system. This increases the float (amount of funds available for use but not yet collected) and reduces the demand for reserves. To counteract this, the Fed initiates defensive open market operations by purchasing securities in the market, which injects reserves into the banking system and increases the supply of funds. Therefore, the correct answer is B, decrease in float and defensive open market purchases by the Fed.

When Good Weather Speeds the Check-Clearing Process,float Tends to ________