In the context of open market operations, when inflation is a concern, the Fed sells securities to buyers who write checks to the Fed to pay for securities they bought, and the Fed withdraws these funds from banks. With fewer funds, _____.
A)credit becomes tighter
B)banks increase the number of loans they make
C)the money supply increases
D)the inflationary pressures in the economy heat up

Question

Quizplus · Accepted Answer

When the Fed withdraws funds from banks by selling securities, it reduces the amount of reserves banks have available to lend and leads to tighter credit conditions. This results in reduced spending and can help to slow down inflation in the economy.

In the Context of Open Market Operations, When Inflation Is