When the Federal Reserve Banks decide to buy government bonds from banks and the public, the supply of reserves in the Federal funds market:

Question

Quizplus · Accepted Answer

When the Federal Reserve Banks buy government bonds from banks and the public, they increase the supply of reserves in the Federal funds market. This surplus of reserves causes banks to lend to each other at a lower rate, which leads to a decrease in the Federal funds rate.

When the Federal Reserve Banks Decide to Buy Government Bonds