Which of the following increase when the Fed makes open market purchases?
A)currency and reserves
B)currency but not reserves
C)reserves but not currency
D)neither currency nor reserves

Question

Quizplus · Accepted Answer

Open market purchases by the Fed involve buying securities from banks, which increases the reserves held by banks. As a result, banks have more reserves to lend out and create more money, which increases the supply of currency in circulation. Therefore, both currency and reserves increase when the Fed makes open market purchases.

Which of the Following Increase When the Fed Makes Open