If the Fed expects currency holdings to rise,it conducts open market ________ to offset the expected ________ in reserves.
A)purchases;increase
B)purchases;decrease
C)sales;increase
D)sales;decrease

Question

Quizplus · Accepted Answer

If the Fed expects currency holdings to rise, it means that the public is holding onto more money and therefore, there will be a decrease in reserves. To offset this expected decrease, the Fed needs to conduct open market purchases, which will inject additional reserves into the banking system. Therefore, the correct choice is (B) purchases; decrease.

If the Fed Expects Currency Holdings to Rise,it Conducts Open