When the central bank undertakes an open market purchase,
A) the national debt increases
B) bank reserves decrease
C) interest rates rise
D) the money supply increases
E) the monetary base declines

Question

Quizplus · Accepted Answer

When the central bank undertakes an open market purchase, it buys government securities from commercial banks, which increases the reserves of the banks. This, in turn, allows the banks to lend out more money, resulting in an increase in the money supply.

When the Central Bank Undertakes an Open Market Purchase