Asked by Matelita Tuitahi on Jun 02, 2024
Verified
If the Fed buys securities on the open market,this will
A) reduce banks' excess reserves.
B) increases banks' excess reserves.
C) lower the reserve requirement.
D) contract the money supply.
Open Market
An economic system with few barriers to free market activity where prices for goods and services are determined by supply and demand.
Excess Reserves
Excess funds maintained by a bank or financial institution above the minimum levels mandated by regulatory authorities, creditors, or the institution's internal regulations.
Securities
Financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.
- Learn about the operations and resources the Federal Reserve engages in monetary policy regulation.
- Acquire knowledge on how the Federal Reserve's decisions affect inflation, interest rates, and the monetary base.
- Learn about the workings of open market operations and their contribution to monetary policy objectives.
Verified Answer
MM
MIHAILEY MILLERJun 08, 2024
Final Answer :
B
Explanation :
When the Fed buys securities on the open market, it injects money into the banking system, increasing banks' excess reserves. This can lead to an increase in lending and the expansion of the money supply.
Learning Objectives
- Learn about the operations and resources the Federal Reserve engages in monetary policy regulation.
- Acquire knowledge on how the Federal Reserve's decisions affect inflation, interest rates, and the monetary base.
- Learn about the workings of open market operations and their contribution to monetary policy objectives.