Question

Which of the following actions would cause a decrease in the level of reserves in the banking​ system? A. The FOMC instructs the NY trading desk to purchase government bonds on the open market. B. A customer withdraws funds from Reliable Bank and deposits them in National Bank. C. The federal government issues new bonds to finance the budget deficit. D. The federal government pays off bonds that were originally issued to finance the budget deficit. E. The FOMC instructs the NY trading desk to sell government bonds on the open market.

Answer 1

Answer:

E. The FOMC instructs the NY trading desk to sell government bonds on the open market.

Explanation:

FOMC The Federal Open Market Committee is charged under US Laws.

This is controlled through transactions of FOMC,

When Federal Committee (FOMC) purchases bonds from open markets then there is an instant increase in level of reserves in the banking system.

Thereafter, the sale by Federal Committee in the open market tend to decrease the level of reserves in the banking system.

This is directly related to the reserve level.