The quantitative easing policy conducted by the Federal Reserve between 2007 and 2011 resulted in a large increase in the monetary base that was partially offset by:
A) a significant increase in the reserve-deposit ratio.
B) a significant decrease in the reserve-deposit ratio.
C) open-market purchases.
D) open-market sales.

Question

Quizplus · Accepted Answer

The quantitative easing policy led to a significant increase in bank reserves held at the Federal Reserve. Banks, uncertain about the economic outlook and facing stricter regulations, held onto these reserves rather than lending them out, which increased the reserve-deposit ratio. This was a partial offset to the increase in the monetary base, as it meant that the additional reserves did not translate directly into a proportional increase in the money supply circulating in the broader economy.

The Quantitative Easing Policy Conducted by the Federal Reserve Between