When the Fed buys government securities,the immediate effect of the purchase is that banks'
A)reserves increase.
B)deposits increase.
C)assets increase.
D)reserves decrease.
E)loans decrease.

Question

Quizplus · Accepted Answer

When the Fed buys government securities from banks, it pays for them by increasing the banks' reserves. This is known as an open market operation and it increases the overall level of reserves in the banking system.

When the Fed Buys Government Securities,the Immediate Effect of the Purchase