When the Federal Open Market Committee buys government securities:

Question

Quizplus · Accepted Answer

When the Federal Open Market Committee buys government securities, it injects new reserves into the banking system, which increases the excess reserves of banks. This increase in excess reserves can lead to an increase in the money supply through the lending and deposit creation process. The other choices are incorrect because buying government securities does not directly affect the reserve requirement, reserve deposits, federal funds rate, or legal reserves of banks.

When the Federal Open Market Committee Buys Government Securities