An open market purchase of government securities by the Fed will cause which of the following?

Question

Quizplus · Accepted Answer

An open market purchase of government securities by the Fed increases the excess reserves in the banking system, leading to an excess quantity of reserves supplied. This excess supply of reserves will lower the federal funds rate as banks try to lend out their excess reserves. Therefore, option B is correct, stating that an excess quantity of reserves supplied will result in a reduction in the federal funds rate.

An Open Market Purchase of Government Securities by the Fed