An open market purchase by the Fed
A) increases investment and increases output.
B) increases investment and decreases output.
C) decreases investment and increases output.
D) decreases investment and decreases output.

Question

Quizplus · Accepted Answer

An open market purchase by the Fed refers to the purchase of securities by the central bank from commercial banks, which increases the reserves of these banks. This increase in reserves facilitates an increase in investment, which stimulates the economy and leads to an increase in output. Therefore, an open market purchase by the Fed results in an increase in investment and an increase in output, making option A the correct choice.

An Open Market Purchase by the Fed