Question

If the Fed purchases government securities from a commercial bank, which of the following will happen?a.The Fed will increase the bank's reserves on deposit at the Fed.b.The Fed will decrease the bank's reserves on deposit at the Fed.c.The assets (government securities) of the Fed will decrease.d.The assets (government securities) of the Fed will increase.e.a and d

Answer 1

Answer:

The correct answer is letter "E": "A" and "B".

Explanation:

In order to accomplish its monetary policy, the Federal Reserve (Fed) buys and sells securities in the open market to control the money supply. If there is more money supply in the open market, loan rates will decrease allowing investors to access more capital. At the same time, the Fed reserves and assets will increment.