When the Fed sells government securities in the open market, the money supply because . A. increases; banks

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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

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1 answer:

Brums [2.3K] · Answer 1 · 2022-02-20T22:01:50+03:00

Answer: Option (B) is correct.

Explanation:

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.

When the Fed sells government securities in the open​ market, the money supply​ ________ because​ ________. A. ​increases; banks

When the Fed sells government securities in the open market, the money supply because . A. increases; banks