When a commercial bank borrows from the Fed,
A) the reserves of the bank fall.
B) the bank can make more loans.
C) it must be because the bank is not meeting its reserve requirements.
D) the money supply falls.

Question

Quizplus · Accepted Answer

When a commercial bank borrows from the Fed, it increases its reserves, which means the bank can make more loans. This can have a stimulatory effect on the economy by increasing the money supply and providing more credit to households and businesses.

When a Commercial Bank Borrows from the Fed