Suppose the Federal Reserve Banks sell $2 billion of government bonds to the public, which pays for them by drawing checks. As a result, commercial bank reserves will

Question

Quizplus · Accepted Answer

When the Federal Reserve sells government bonds to the public, and the public pays by drawing checks on their bank accounts, the banks' reserves at the Federal Reserve decrease by the amount of the checks because the money is transferred out of the banks' reserves into the Federal Reserve's accounts.

Suppose the Federal Reserve Banks Sell $2 Billion of Government