Which of the following will increase commercial bank reserves?

Question

Quizplus · Accepted Answer

When the Federal Reserve Banks purchase government bonds in the open market, they pay for the bonds by crediting the seller's account with their bank, which increases the seller's bank reserves. This, in turn, increases the total reserves in the banking system, including commercial banks.

Answer: B and C
 An increase in the reserve ratio and an increase in the discount rate both decrease the amount of money that commercial banks can lend out, which reduces their reserves. Therefore, they would not increase commercial bank reserves.

Answer: D
 When the Federal Reserve Banks sell government bonds in the open market, buyers pay for the bonds by taking funds out of their bank accounts, which reduces their bank reserves. This, in turn, reduces the total reserves in the banking system, including commercial banks. Therefore, the sale of government bonds in the open market would not increase commercial bank reserves.

Which of the Following Will Increase Commercial Bank Reserves