Question

Through open market operations, the Federal Reserve buys and sells government securities to influence the supply of bank reserves. When the Fed wants to increase excess reserves held by banks, it does what? A) buy bonds B) sell bonds Eliminate C) increase interest rates D) increase reserve ratios

Answer 1

When the Fed wants to increase excess reserves held by banks it buys bonds.

Option A

Explanation:

From the given case, if the federal bank wants to increase excess reserves it can increase the supply of money lowering the reserve requirement.

This in turn will increase the excess reserves in the system there by giving boost the economy by lending loans for infrastructure development and manufacturing sector.

By the way of central bank buying bonds in the open market it will increase the supply of money into the economy by exchanging bonds for cash from the general public.