If the FOMC orders a purchase of government securities from member banks, where does the FOMC get the money to pay for the securities?
A)It creates money to pay for the securities by adding the purchase amount to the banks' reserves.
B)It pays for the securities with new Federal Reserve notes.
C)It borrows the necessary funds from the Treasury.
D)It auctions off part of the securities it already owns.

Question

Quizplus · Accepted Answer

The FOMC creates money to pay for the securities by adding the purchase amount to the banks' reserves. This increases the overall amount of money in circulation, which can contribute to economic growth but also carries the risk of inflation.

If the FOMC Orders a Purchase of Government Securities from Member