When the Fed purchases securities from a bank,it __________ reserves and ____________ the money supply.
A) decreases; decreases
B) increases; increases
C) decreases; increases
D) increases; decreases
E) has no impact on; has no impact on

Question

Quizplus · Accepted Answer

When the Federal Reserve (Fed) purchases securities from a bank, it pays the bank, which increases the bank's reserves. This, in turn, allows the bank to lend more, thereby increasing the money supply in the economy.

When the Fed Purchases Securities from a Bank,it __________ Reserves