If the Fed purchases government securities on the open market,the money supply will

Question

Quizplus · Accepted Answer

When the Fed purchases government securities on the open market, it pays for these securities by creating new reserves in the banking system. These reserves, in turn, enable banks to make new loans and increase the money supply. This process applies to all sellers, whether they are commercial banks or securities dealers. Therefore, the correct choice is E - the money supply will increase through the commercial banking system regardless of who the seller is.

If the Fed Purchases Government Securities on the Open Market,the