If the Fed purchases government securities from Bank A,__________ in the banking system __________ and the money supply __________.
A) reserves; fall; falls
B) reserves; rise; falls
C) reserves; rise; rises
D) excess reserves; fall; rises
E) excess reserves; rise; falls

Question

Quizplus · Accepted Answer

When the Fed purchases government securities from Bank A, it creates new reserves in the banking system, which increases the overall supply of reserves. As a result, banks will have more excess reserves that they can use to make loans or investments, contributing to an increase in the money supply. Therefore, reserves will rise, and the money supply will rise as well.

If the Fed Purchases Government Securities from Bank A,__________ in the Banking