When the Fed sells government securities in the open market, the money supply ________ because ________. A. increases; banks
lose liquidity, they make more loans and checking account deposits increase B. decreases; banks lose liquidity, they make fewer loans and checking account deposits decrease C. decreases; banks gain liquidity, they make fewer loans and checking account deposits decrease D. increases; banks gain liquidity, they make more loans and checking account deposits increase E. none of the above
Open market operations: In Open market operations, there is a buying and selling of government securities by the central bank of a nation. It is a monetary policy instrument that is used to control money supply in an economy.
If Fed sells the government securities in the open market then as a result there is a transfer of from public to Fed. So, there is a fall in the money supply because banks lose liquidity. Now, banks are able to make fewer loans to the borrowers and checking deposits also decreases.
Real gross domestic product is an inflation adjusted measure that reflects the value of all goods and services produced by a state economy in a year. It is often to as either constant dollar GDP, inflation corrected or constant prices
