An open-market ________ of securities by the Fed results in a decrease in reserves and a decrease in the ________ money.

Question

Quizplus · Accepted Answer

An open-market sale of securities by the Fed means that the Fed is selling securities to banks and other financial institutions. In exchange for these securities, banks pay the Fed with their reserves. Therefore, this results in a decrease in reserves for banks, and a decrease in the supply of money in the economy, since there is less money available for lending and spending.

An Open-Market ________ of Securities by the Fed Results in a Decrease