A purchase of U.S. government securities by the Fed causes

Question

Quizplus · Accepted Answer

When the Federal Reserve (Fed) purchases U.S. government securities, it pays for these securities by adding the amount to the reserves of the banks from which it buys them. This increase in bank reserves can lead to a multiple expansion of the money supply through the banking system's ability to lend more, creating new deposits in the process. The initial purchase amount serves as a base for this expansion, making the total increase in the money supply more than the original amount of the securities purchased.

A Purchase of U