The monetary expansion process from an open market operation continues until
A) excess bank reserves are eliminated.
B) the Federal Reserve takes actions to stop the process.
C) required reserves are eliminated.
D) the discount rate is lower than market interest rates.

Question

Quizplus · Accepted Answer

The monetary expansion process through open market operations continues until excess bank reserves are eliminated, which means banks no longer have excess funds to lend out and the money supply has increased to its target level. The Federal Reserve may take actions to stop the process if they believe the monetary expansion is excessive or inflationary, but this does not necessarily mean the process has reached its end. Required reserves are a regulatory requirement for banks and do not determine the end of the monetary expansion process. The discount rate being lower than market interest rates may incentivize borrowing, but it does not directly impact the elimination of excess reserves.

The Monetary Expansion Process from an Open Market Operation Continues