If the Fed sells government securities to the general public in the open market:
A) The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will increase commercial bank reserves at the Fed
B) The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed
C) The public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will increase their reserves at the Fed
D) The public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will decrease their reserves at the Fed

Question

Quizplus · Accepted Answer

When the Fed sells government securities to the general public in the open market, the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed. This is because the checks will be deposited into commercial banks, which will then have less money in their reserves at the Fed.

If the Fed Sells Government Securities to the General Public