When the Fed purchases government securities,
A)excess reserves in the banking system increase,leading to more loans being made.
B)required reserves in the banking system increase,leading to more loans being made.
C)excess reserves in the banking system decrease,leading to fewer loans being made.
D)required reserves in the banking system decrease,leading to fewer loans being made.
E)the monetary base does not change.

Question

Quizplus · Accepted Answer

When the Fed purchases government securities, it injects cash into the banking system, increasing the banks' excess reserves. With more excess reserves, banks have an incentive to lend out more to maximize their profit, increasing the money supply and stimulating economic growth.

When the Fed Purchases Government Securities