The initial impact of the Fedʹs open market sale of government securities to banks is
A) an increase in the quantity of money by some multiple of the dollar volume of the sale.
B) a decrease of the banking systemʹs reserve deposits at the Fed.
C) a decrease in the quantity of money by some multiple of the dollar volume of the sale.
D) an increase in bank deposits at the Fed.

Question

Quizplus · Accepted Answer

When the Fed sells government securities to banks, it reduces the banks' reserve deposits at the Fed, as the banks pay for these securities with their reserves.

The Initial Impact of the Fedʹs Open Market Sale of Government