The Fed increases reserves if it conducts open market
A)purchases or auctions term credit.
B)purchases but not if it auctions term credit
C)sales or auctions term credit
D)sales but not if it auctions term credit

Question

Quizplus · Accepted Answer

The Fed increases reserves by conducting open market purchases, which involves purchasing government securities from banks and other financial institutions, thereby increasing the reserves held by these institutions. Open market auctions of term credit involve the opposite action, where the Fed sells short-term credit to banks and decreases reserves, so option C is incorrect. Option B is incorrect as the Fed does increase reserves through open market purchases of government securities. Option D is incorrect as it contradicts option C.

The Fed Increases Reserves If It Conducts Open Market