When the Fed buys securities from the public,banks' reserves ________ and the quantity of money ________.
A)increase;increases
B)increase;decreases
C)decrease;increases
D)decrease;decreases
E)do not change;increases

Question

Quizplus · Accepted Answer

When the Fed buys securities from the public, banks' reserves increase because they receive payment for the securities. This increase in reserves leads to an increase in the quantity of money in the economy because banks can use these reserves to make loans and create new deposits. Therefore, both the reserves and the quantity of money increase.

When the Fed Buys Securities from the Public,banks' Reserves ________