If the Fed buys government bonds,which will likely NOT increase?
A) the monetary base
B) M1
C) the Federal Funds rate
D) bank reserves

Question

Quizplus · Accepted Answer

When the Fed buys government bonds, it injects reserves into the banking system, which in turn increases the monetary base and bank reserves. This increase in reserves should lead to a decrease in the Federal Funds rate, as banks have more reserves to lend to each other in the overnight market. However, the purchase of government bonds does not directly impact the M1 money supply, as M1 only includes currency, demand deposits, and other highly liquid assets. Therefore, the correct answer is C, the Federal Funds rate.

If the Fed Buys Government Bonds,which Will Likely NOT Increase