If the Fed carries out an open market operation to buy U.S. government securities, the federal funds rate ________ and the quantity of reserves ________.

Question

Quizplus · Accepted Answer

When the Fed buys U.S. government securities, it injects new money into the banking system. This increases the supply of reserves, making it easier for banks to loan money to each other. As a result, the federal funds rate falls. Additionally, the quantity of reserves in the banking system increases.

If the Fed Carries Out an Open Market Operation to Buy