If the Fed wants to decrease the amount of deposits that banks hold,it can
A)buy government bonds in an open market operation.
B)sell government bonds in an open market operation.
C)force banks by decree to do so.
D)sell domestic deposits to foreign investors.
E)None of these

Question

Quizplus · Accepted Answer

Selling government bonds in an open market operation would decrease the amount of deposits that banks hold, as banks use deposits to purchase government bonds. This would also decrease the money supply, as banks would have less money to lend out. The other options are not effective or practical ways for the Fed to decrease deposits held by banks.

If the Fed Wants to Decrease the Amount of Deposits