Statement I: When the Fed sells U.S.government securities on the open market,excess reserves are increased.
Statement II: Banks try to carry large balances of excess reserves.

Question

Quizplus · Accepted Answer

Statement I is false because when the Fed sells U.S. government securities on the open market, it actually decreases excess reserves in the banking system by taking cash out of circulation. Statement II is false because banks typically try to minimize excess reserves to maximize their profits, as holding large balances of excess reserves represents an opportunity cost of not earning higher returns through loans or investments.

Statement I: When the Fed Sells U