Question

An open-market purchase of securities by the Fed results in ________ in reserves and ________ in the supply of money. Group of answer choices an increase; a decrease an increase; an increase a decrease; a decrease a decrease; an increase

Answer 1

Answer:

an increase; an increase

Explanation:

Open market operations is a monetary policy instrument which is used by the Fed to control the money supply in an economy. In open market operations, there is a buying and selling of government securities from the public through banks.

If Fed purchases the government securities from the market then this will increase the money supply in an economy and there is a flow of money from Fed to public. This purchase of securities will also increase the reserves of the banks which they can utilized in lending to the individuals and other organisations.