Sales of government securities to banks ____ total and excess reserves and ____ the money supply.

Question

Quizplus · Accepted Answer

Sales of government securities to banks by the central bank (such as the Federal Reserve in the United States) decrease both total and excess reserves in the banking system because banks pay for these securities with their reserves. This action reduces the amount of money banks have available to lend, which in turn decreases the money supply.

Sales of Government Securities to Banks ____ Total and Excess