When the Fed purchases government securities from a commercial bank, the bank:

Question

Quizplus · Accepted Answer

When the Fed purchases government securities from a commercial bank, the bank receives reserves, which can be used to make additional loans. This increases the bank's ability to lend and can therefore stimulate economic activity. The bank does not automatically become poorer or lose equity in the Fed, and it does not lose its ability to make loans.

When the Fed Purchases Government Securities from a Commercial Bank