Asked by Adrian Lukmanto on Jun 27, 2024
Verified
When the Federal Reserve buys U.S.government securities on the open market,this tends to ____ bank reserves and ____ the money supply.
A) raise;raise
B) lower;lower
C) raise;lower
D) lower;raise
U.S. Government Securities
Financial instruments issued by the U.S. Department of the Treasury or other federal government agencies to finance federal spending, including Treasury bonds, notes, and bills.
Bank Reserves
The amounts of funds that a bank holds in its reserve account with the central bank or as cash in vault, to meet any sudden withdrawals.
- Highlight the mechanisms the Federal Reserve adopts to implement monetary policy directives.
- Analyze the aftermath of acquiring and disposing of government bonds on the economy's money pool and interest tariffs.
Verified Answer
JG
Jeron GallimoreJul 02, 2024
Final Answer :
A
Explanation :
When the Federal Reserve buys U.S. government securities on the open market, it pays for these securities by crediting the reserve accounts of the banks from which it buys them. This action increases the reserves of the banks, which in turn can lend more, thereby increasing the money supply.
Learning Objectives
- Highlight the mechanisms the Federal Reserve adopts to implement monetary policy directives.
- Analyze the aftermath of acquiring and disposing of government bonds on the economy's money pool and interest tariffs.